Case 5:02-cv-04497-RMW
Document 155
Filed 12/02/2005
Exhibit 26
Page 1 of 10
Case 5:02-cv-04497-RMW
Document 155
Filed 12/02/2005
Page 2 of 10
COMPANY REPORT
Kalpesh Kapadia
ESS Technology (ESST1,2,3 $18.76)
NEAR-TERM
LONG-TERM
415-659-2243
[email protected]
MARKET PERFORM
MARKET PERFORM
Ken Spalding
415-659-2242
DVD Market Hits The Great Wall of China
Downgrading Near- and Long-Term Rating from
Buy to Market Perform
We believe expectations for robust unit growth in DVD
players, exceeding 50M units (up from 30M in 2001), are
already discounted into the numbers.
Our proprietary channel checks from Asia indicate that
ASP declines at decoder chip levels will be >15% through
CY02, and more importantly, >30% in CY03.
While ESST has been able to defend its leadership share
in the near term through tactical moves and better
customer support, it risks losing share longer term to
Taiwanese players such as MediaTek, in our opinion.
US fabless players, while superior on decoder
sophistication, are behind schedule in terms of single-chip
integration, giving the Taiwanese a window of time in
which to catch up on high-level features, quality and
customer support.
We believe that MediaTek’s superior margin profile
provides it more flexibility.
We believe the overall TAM for DVD chip suppliers will
be flat assuming unit growth of ~45% or ~80M units,
offset by ASP declines of over 30%.
James Alexander
415-659-2241
Key Data
52-Week Range
Weighted Average Shares (MM)
Float (MM)
% Held Institutionally
Market Capitalization (MM)
Average Daily Volume (000)
Revenues – LTM (MM)
Total Debt (MM)
Net Cash per Share
Long-Term Growth Rate
12- to 24-Month Price Target
Fiscal Year Ends: DEC.
Revenue (MM)
$26 - $6
50.0
36.3
95%
$938
2,637
$299.7
$0.0
$4.28
25%
NA
2001A
$271.4
2002E
$339.1
$341.1
2003E
$312.0
$410.0
($0.04)
$0.10
$0.20
$0.35
$0.62
$0.37A
$0.34
$0.36
$0.32
$1.38
$1.40
13.6X
49.7
$0.95
$1.55
19.7X
51.1
Previous Revenues (MM)
Earnings Per Share
Q1
Q2
Q3
Q4
Year
Previous EPS estimates
P/E
Shares Fully Diluted (MM)
30.3X
44.4
We are lowering our Near- and Long-Term ratings on
ESS from Buy to Market Perform. We reduced our 2002
and 2003 estimates as well.
We do, however, believe that ESST’s solid balance sheet
(cash) will provide it a cushion as the competitive scenario
unfolds in 2003.
350 Madison Avenue
New York, NY 10017
212-389-8000 / Fax:212-389-8828
1200 17th Street, Suite 980
Denver, CO 80202
303-824-6100 / Fax 303-892-8811
ESS Technology is a leading provider of high performance
digital display processing integrated circuits used for
powering Digital Versatile Disc (DVD) and Video Compact
Disc (VCD) decompression to be displayed on standard
television. Headquartered in Fremont, CA, the Company
utilizes a fabless model and designs, develops and markets
its processors for use in the fastest growing consumer
electronics video segments.
Four Embarcadero Center
San Francisco, CA 94111
415-659-2222 / Fax 415-399-1113
July 18, 2002
Disclaimers regarding the content of this report as well as full disclosure of C.E. Unterberg,
Towbin’s ratings and information on the firm’s position(s) in securities mentioned herein
appear on the final page of this report.
Case 5:02-cv-04497-RMW
Document 155
Filed 12/02/2005
Page 3 of 10
C.E. UNTERBERG, TOWBIN
We believe expectations for robust unit growth in DVD players, exceeding 50M units (up from
30M in 2001), are already discounted into the numbers.
Year ago
Weekly DVD Sales
4-Jan-02
100,400
77,649
11-Jan-02
114,937
135,568
18-Jan-02
176,563
115,864
25-Jan-02
195,310
242,950
1-Feb-02
199,176
183,009
8-Feb-02
123,066
89,623
15-Feb-02
208,462
117,682
22-Feb-02
235,414
165,542
1-Mar-02
248,236
244,393
8-Mar-02
157,697
114,243
15-Mar-02
307,760
196,316
22-Mar-02
245,433
242,774
29-Mar-02
359,241
409,763
5-Apr-02
92,932
90,556
12-Apr-02
167,312
101,595
19-Apr-02
272,261
98,502
26-Apr-02
558,262
340,700
3-May-02
237,689
140,413
10-May-02
208,312
88,546
17-May-02
250,912
115,310
24-May-02
244,760
178,956
31-May-02
408,452
249,393
7-Jun-02
199,085
69,841
14-Jun-02
250,211
77,416
21-Jun-02
242,875
125,249
28-Jun-02
516,475
398,940
5-Jul-02
187,442
109,990
Y/Y
29.3%
-15.2%
52.4%
-19.6%
8.8%
37.3%
77.1%
42.2%
1.6%
38.0%
56.8%
1.1%
-12.3%
2.6%
64.7%
176.4%
63.9%
69.3%
135.3%
117.6%
36.8%
63.8%
185.1%
223.2%
93.9%
29.5%
70.4%
YTD 2002
100,400
215,337
391,900
587,210
786,386
909,452
1,117,914
1,353,328
1,601,564
1,759,261
2,067,021
2,312,454
2,671,695
2,764,627
2,931,939
3,204,200
3,762,462
4,000,151
4,208,463
4,459,375
4,704,135
5,112,587
5,311,672
5,561,883
5,804,758
6,321,233
6,508,675
YTD 2001
77,649
213,217
329,081
572,031
755,040
844,663
962,345
1,127,887
1,372,280
1,486,523
1,682,839
1,925,613
2,335,376
2,425,932
2,527,527
2,626,029
2,966,729
3,107,142
3,195,688
3,310,998
3,489,954
3,739,347
3,809,188
3,886,604
4,011,853
4,410,793
4,520,783
YTD
29.3%
1.0%
19.1%
2.7%
4.2%
7.7%
16.2%
20.0%
16.7%
18.3%
22.8%
20.1%
14.4%
14.0%
16.0%
22.0%
26.8%
28.7%
31.7%
34.7%
34.8%
36.7%
39.4%
43.1%
44.7%
43.3%
44.0%
Source: CEA and CEUT estimates
Our channel checks from Asia indicate that ASP declines at decoder chip levels will be >15% through
CY02, and more importantl >30% in CY03.
While ESST has been able to defend its leadership share in the near term through tactical moves and better
customer support, it risks losing share longer term to Taiwanese players such as MediaTek, in our opinion.
Our channel checks indicate that MediaTek has secured at least 5 “design-ins” with large OEMs/ODMs. In one big
account, Shinco, we believe ESS has been able to maintain its share by offering partnered solution with ALi in the
near term, offering P-Scan as a standard feature and some price concession. However, longer term, the trend is in
favor of single-chip solution due to its clear advantages and Mediatek with at least 6 months of lead is in a position
to take some share away from the likes of ESST.
2
Case 5:02-cv-04497-RMW
Document 155
Filed 12/02/2005
Page 4 of 10
C.E. UNTERBERG, TOWBIN
US fabless players, while superior on Ddcoder sophistication, are behind schedule in single-chip
integration, giving the Taiwanese a window of time in which to catch up on high-level features,
quality and customer support. We believe the sophistication of US fabless players’ decoders in
decompression quality and error correction gives them a competitive edge, however the six-month lead
of MediaTek allows it to catch up by Chinese New Year build season, thus allowing incumbents to meet
their goals for Christmas build.
Single Chip DVD Solution Competitive Analysis
Part Number
Availability
Price (Est. in 2003)
ESST
Zoran
MediaTek
ALi
ES6638F
"Vaddis 6"
MT1369
M3351
4Q02
1Q03
In Production
3Q02
$10
$10
$10
$10
70
30
10
N/A
Support Staff in China
Decoder Processor
Audio DSP
TV Encoder
Progressive Scan
Audio Supported Dolby ProLogic
Dolby Digital
MP3
WMA
SA CD
DVD-Audio
Package
IC Process Technology
135MHz 32-bit 135 MHz 32-bit
RISC
RISC
64-bit DSP
32-bit DSP
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
208-pin PQFP
N/A
0.18µ
0.18µ
32-bit RISC
MIPS
32-bit DSP
3Q02
3Q02
X
X
X
X
N/A
X
X
X
X
X
X
X
208-pin PQFP
0.25µ
X
208-pin PQFP
0.25µ
N/A
Source: Company Reports and CEUT Estimates
3
Case 5:02-cv-04497-RMW
Document 155
Filed 12/02/2005
Page 5 of 10
C.E. UNTERBERG, TOWBIN
2002 DVD Front End / Back End Architecture
Analog
signal
processor
Channel
Driver
Flash
Flash
SERVO
DVD MPEG2
DECODER
Display / Remote
Audio
Out
Audio DAC
MediaTek
ALi
ESST Zoran
LSI Cirrus
STM Captive
DRAM
Video Out
DRAM
Front-End
Back-End
2003 DVD Integrated Servo / Decoder Architecture
Flash
DVD-Multi
Analog Signal
Processor
Channel
Driver
Integrated Servo /
Decoder
MediaTek
ALi
ESST
Zoran
Display / Remote
Audio DAC
Audio
Out
Video Out
DRAM
Original Illustration
4
Case 5:02-cv-04497-RMW
Document 155
Filed 12/02/2005
Page 6 of 10
C.E. UNTERBERG, TOWBIN
We believe that MediaTek’s superior margin profile provides it more flexibility: Gross margins of
53.7% at MediaTek compare favorably to 43.3% and 35.3% at ESS and Zoran (ZRAN1,3 $18.79,
MP/MP), respectively. This will give Mediatek the flexibility to lower prices in the near term to gain a
foothold in the market, in our opinion.
D V D D e c o d e r S u p p lie r M a rg in A n a ly s is (m o s t re c e n t q u a r te r)
P ro d u c t G ro s s
M a rg in s
O v e ra ll O p e ra tin g
M a rg in s
ESST
Z o ra n
M e d ia T e k
A li (1 )
C irru s
4 3 .3 %
3 5 .3 %
5 3 .7 %
>40%
4 7 .0 %
2 2 .2 %
3 .2 %
4 8 .4 %
??
-1 3 .7 %
(1 ) A L i g ro s s m a rg in s in D V D p la y e rs a re b a s e d o n o u r e d u c a te d g u e s s
S o u rc e : C o m p a n y R e p o rts a n d C E U T E s tim a te s
We believe the overall TAM for DVD chip suppliers will be only flat, assuming unit growth of
~45% or ~80M units.
T o ta l D V D u n its s h ip p e d ( in m illio n s )
Y /Y u n it g r o w th
ASPs
F r o n t E n d IC s
Y /Y d e c lin e
B a c k E n d IC s
Y /Y d e c lin e
G e n e ra l p u rp o s e IC s
D is c re te s
RF
T o ta l IC B O M
T o ta l
T o ta l
Y /Y
T o ta l
Y /Y
T o ta l
T o ta l
Y /Y
IC m a rk e t ( $ in m illio n s )
d e c o d e r IC m a rk e t
g r o w th
F r o n t e n d m a rk e t
g r o w th
s in g le c h ip IC m a r k e t
F r o n t e n d /b a c k e n d
g r o w th % in F ro n t e n d /b a c k e n d
2001
30
$ 8 .0
$ 9 .5
$ 1 1 .0
$ 1 .5
$ 2 .5
$ 3 2 .5
$ 9 7 5 .0
$ 2 8 5 .0
$ 2 4 0 .0
$ 5 2 5 .0
2002
55
83%
2003
80
45%
$ 7 .0
-1 3%
$ 7 .8
-1 8%
$ 1 0 .0
$ 1 .5
$ 2 .5
$ 2 8 .4
$ 5 .0
-29 %
$ 5 .0
-35 %
$ 1 0 .0
$ 1 .5
$ 2 .5
$ 2 3 .4
$ 1 ,5 6 4 .2
$ 4 2 6 .3
50%
$ 3 8 5 .0
60%
$ 1 ,8 6 8 .8
$ 2 0 0 .0
-5 3 %
$ 2 0 0 .0
-4 8 %
$ 4 0 0 .0
$ 8 0 0 .0
-1%
$ 8 1 1 .3
55%
P r o b le m A r e a
R e v e n u e s b y s u p p lie r s
ESST
ZRAN
LSI
CRUS
STM
C a p tiv e
M e d ia te k ( s in g le c h ip )
A L i ( s in g le c h ip )
D e c o d e r IC m a r k e t s h a re b y s u p p lie r
ESST
ZRAN
LSI
CRUS
STM
C a p tiv e (S o n y , P a n a s o n ic )
O th e r s
T o ta l
S in g le C h ip IC m a r k e t s h a r e b y s u p p lie r
M e d ia te k
ALi
ESST
ZRAN
$ 9 9 .0
$ 7 6 .2
$ 2 1 4 .0
$ 1 2 0 .0
$ 2 1 0 .0
$ 1 3 0 .0
$ 1 4 0 .0
$ 6 0 .0
3 4 .7 %
2 6 .7 %
1 0 .0 %
5 .0 %
6 .0 %
1 5 .0 %
2 .5 %
1 0 0 .0 %
5 0 .2 %
3 5 .0 %
2 8 .2 %
3 5 .0 %
7 .0 %
5 .0 %
7 .5 %
1 2 .0 %
5 .0 %
4 .0 %
1 2 .0 %
1 2 .0 %
2 .0 %
2 .0 %
1 1 1 .9 %
1 0 5 .0 %
P r o b le m A r e a
3 5 .0 %
1 5 .0 %
3 5 .0 %
1 5 .0 %
5
Case 5:02-cv-04497-RMW
Document 155
Filed 12/02/2005
Page 7 of 10
C.E. UNTERBERG, TOWBIN
Source: CEUT estimates
We are lowering our estimates on ESST. Our numbers for CY02 go from $341.1M and $1.40 to
$339.1M and $1.38 and for CY03, from $410M and $1.55 to $312M and $0.95.
We are downgrading our rating from NT/LT Buy to NT/LT Market Perform: We realize that the
commentary from management for the upcoming quarter is going to be very bullish and that the issues
outlined in this report probably will take 3-6 months to manifest. We believe that ESST needs to reduce
its heavy reliance on the DVD player space (58% of revenues in 1Q02) and diversify into newer
markets. As such, we are lowering our short- and Long-term ratings from Buy to Market Perform.
We believe that its solid balance sheet (cash) will provide ESS a cushion as the competitive
scenario unfolds in 2003. ESS maintains a healthy balance sheet with $4.28 in cash and $5.08 in book
value, which provides it a cushion to withstand the competitive pressures we anticipate.
6
Case 5:02-cv-04497-RMW
Document 155
Filed 12/02/2005
Page 8 of 10
C.E. UNTERBERG, TOWBIN
C.E. Unterberg, Towbin Ratings
C.E. Unterberg, Towbin assigns research equities both a short- (3-6 months) and long-term (12-24
months) rating of Buy, Market Perform or Avoid. For Long-Term Buys, we publish a 12-month price
target.
•
•
•
•
Short-Term Buy:
Long-Term Buy:
Market Perform:
Avoid:
Over three to six months, 20% appreciation potential
Over 12 to 24 months, 35% appreciation potential
Performance in line with the Nasdaq Composite
Significant underperformance anticipated.
This report is for informational purposes only, and the information herein is obtained from sources that
we believe to be reliable, but its accuracy and completeness, and that of the opinions based thereon,
are not guaranteed. The securities described herein may not be eligible for sale in all jurisdictions or to
certain categories of investors. Further, this report is not intended as an offer or solicitation to buy or sell
any securities or related instruments. The investments discussed or recommended in this report many
not be suitable for the specific investment objectives, financial situation or needs of the reader, and
should not be relied upon without consultation with an investment professional. Opinions expressed in
this report are subject to change without notice. C.E. Unterberg, Towbin accepts no liability whatsoever
for any loss or damage of any kind arising out of the use of any part, or all, of this report. This report is
for distribution only under such circumstances as may be permitted by applicable law, and may not be
reproduced or distributed in any form without the specific consent of C.E. Unterberg, Towbin.
Redistribution of this, via the Internet or otherwise, report without permission is specifically prohibited,
and C.E. Unterberg, Towbin accepts no liability for the actions of third parties in this regard.
From time to time, C.E. Unterberg, Towbin or its employees may have a long or short position in the
securities of company(ies) discussed herein and, at any time, may make purchases and/or sales as
principal or agent.
Footnotes:
When the corresponding number appears next to the security symbol, the following disclosure(s) apply:
1 C.E. Unterberg, Towbin makes a market in this security.
2 C.E. Unterberg, Towbin acted as a manager or co-manager of a public offering for this company
within the last three years.
3 C.E. Unterberg, Towbin has performed investment banking, capital markets or other services for
this company or its officers within the last three years.
4 Securities, or derivatives thereof, of this company are owned either directly by the securities analyst
covering the stock, a member of his or her team, or indirectly by the household family members.
5 An officer, or a household family member of an officer, of C.E. Unterberg, Towbin, is a director or an
officer of this company.
C.E. Unterberg Towbin
Four Embarcadero Center, San Francisco CA 94111
Date:
07/17/02
FY End:
DEC
Price:
$18.76
Kalpesh Kapadia (415) 659 2243
Ken Spalding (415) 659 2242
ESS Technology
TICKER (ESST)
($ In Millions Except Per Share Data)
Fiscal
Year
Sales
Chg.
YoY
Gross
%
Chg.
Q1A
Q2A
Q3A
Q4A
1999A
79.3
67.2
75.4
88.7
310.7
N.M.
N.M.
N.M.
N.M.
N.M.
N.M.
-15.2%
12.2%
17.7%
31.2
26.4
28.5
33.1
119.1
39.4%
39.2%
37.7%
37.3%
38.3%
N.M.
N.M.
N.M.
N.M.
N.M.
8.4
9.4
10.5
10.2
38.6
8.1
7.8
8.4
8.2
32.5
16.6
17.2
18.9
18.3
71.0
20.9%
25.5%
25.1%
20.7%
22.9%
Q1A
Q2A
Q3A
Q4A
2000A
83.6
79.6
87.7
52.5
303.4
5.4%
18.4%
16.3%
-40.8%
-2.3%
-5.8%
-4.8%
10.2%
-40.1%
30.5
30.3
35.2
15.0
111.0
36.5% -2.4%
38.1% 14.9%
40.1% 23.7%
28.6% -54.6%
36.6% -6.8%
8.6
9.6
10.9
7.0
36.2
3.2
6.6
5.8
6.3
21.8
11.8
16.2
16.8
13.3
58.0
14.1%
20.3%
19.1%
25.3%
19.1%
Q1A
Q2A
Q3A
Q4A
2001A
50.8
64.9
72.4
83.3
271.4
-39.2%
-18.4%
-17.5%
58.5%
-10.6%
-3.3%
27.8%
11.5%
15.0%
11.2
18.9
26.5
34.5
91.1
22.0%
29.2%
36.6%
41.5%
33.6%
-63.3%
-37.5%
-24.8%
130.0%
-17.9%
8.7
8.9
11.7
11.4
40.7
4.8
5.7
6.0
6.7
23.2
13.5
14.6
17.7
18.1
63.9
26.6%
22.5%
24.5%
21.7%
23.6%
14.7%
-9.8%
5.6%
36.0%
10.1%
Q1A
Q2E
Q3E
Q4E
2002E
79.1
84.0
90.0
86.0
339.1
55.7%
29.4%
24.3%
3.3%
25.0%
-5.0%
6.2%
7.1%
-4.4%
34.3
34.4
36.9
34.4
140.0
43.3%
41.0%
41.0%
40.0%
41.3%
N.M.
81.8%
39.4%
-0.4%
53.6%
10.4
11.1
11.4
11.4
44.2
6.4
7.1
8.0
8.0
29.5
16.7
18.2
19.4
19.4
73.7
21.1% 23.8%
21.7% 24.8%
21.6% 9.7%
22.5% 6.9%
21.7% 15.3%
2003E
312.0
-8.0%
N.M.
117.0
37.5% -16.4%
43.7
29.6
73.3
23.5% -0.6%
Seq
Inc.
Operating Expenses
SG&A R&D
Total
%
Operating
%
Chg.
14.7
9.2
9.5
14.7
48.1
18.5%
13.7%
12.6%
16.6%
15.5%
N.M.
N.M.
N.M.
N.M.
N.M.
18.7
14.1
18.4
1.7
52.9
22.4%
17.7%
21.0%
3.3%
17.4%
1.4%
8.2%
21.3%
2.1%
(2.3)
4.3
8.7
16.4
27.2
-4.5%
6.7%
12.1%
19.7%
10.0%
-7.7%
9.1%
6.6%
-0.5%
YoY
Seq.
N.M.
N.M.
N.M.
N.M.
N.M.
N.M.
3.6%
10.3%
-3.1%
-29.0% -35.9%
-5.7% 37.6%
-11.4%
3.6%
-27.5% -20.7%
-18.3%
Pretax
%
Chg.
15.7
10.3
10.7
16.0
52.8
19.8%
15.4%
14.2%
18.0%
17.0%
N.M.
N.M.
N.M.
N.M.
N.M.
15.0%
15.3%
15.6%
17.5%
15.9%
27.6%
53.5%
93.5%
-88.4%
10.1%
19.6
14.6
19.9
3.7
57.9
23.5%
18.4%
22.7%
7.0%
19.1%
24.9%
41.4%
86.1%
-76.9%
9.7%
N.M.
-69.3%
-52.5%
N.M.
-48.6%
(2.0)
4.7
9.7
17.1
29.6
-3.9%
7.3%
13.4%
20.6%
10.9%
17.6
16.2
17.5
15.1
66.3
22.2%
N.M.
19.3%
N.M.
19.4% 99.7%
17.5%
-8.5%
19.5% 143.5%
43.7
14.0% 190.2%
Inc.
Net
%
Chg.
Diluted
EPS
13.4
8.8
9.0
13.2
44.3
16.9%
13.0%
12.0%
14.9%
14.3%
N.M.
N.M.
N.M.
N.M.
N.M.
0.30
0.19
0.20
0.28
0.97
N.M.
N.M.
N.M.
N.M.
N.M.
N.M.
-35.2%
1.3%
43.6%
44.7
45.1
46.0
46.7
45.6
19.3%
16.6%
17.0%
13.3%
17.4%
18.0
13.8
19.0
5.4
56.2
21.5% 34.7%
17.3% 57.2%
21.7% 110.3%
10.4% -58.7%
18.5% 26.8%
0.34
0.25
0.36
0.07
1.04
13.1%
30.8%
82.7%
-74.7%
7.0%
19.8%
-25.0%
41.4%
-80.1%
46.9
48.0
46.1
44.7
45.9
N.M.
-67.7%
-51.2%
N.M.
-48.8%
15.4%
8.5%
5.0%
5.2%
5.2%
(1.7)
4.3
9.2
16.2
28.1
-3.3%
N.M.
6.7% -68.6%
12.8% -51.4%
19.5% 198.7%
10.4% -50.0%
(0.04)
N.M.
0.10 -61.4%
0.20 -43.2%
0.35
N.M.
0.62 -40.7%
N.M.
N.M.
107.9%
73.8%
42.4
44.1
45.4
45.9
44.4
18.8
17.7
19.0
16.8
72.3
23.8%
N.M.
21.1%
N.M.
21.1% 94.8%
19.5%
-2.3%
21.3% 143.9%
4.8%
5.0%
5.0%
5.0%
4.9%
17.9
16.8
18.0
15.9
68.7
22.7%
N.M.
20.0%
N.M.
20.0% 94.8%
18.5%
-2.0%
20.3% 144.1%
0.37
N.M.
0.34
N.M.
0.36 76.4%
0.32 -10.6%
1.38 124.5%
4.8%
-9.3%
6.7%
-11.9%
48.3
50.0
50.1
50.3
49.7
51.2
16.4%
5.0%
48.6
15.6%
0.95
N.M.
51.1
Inc.
-29.2%
Tax
Rate
Inc.
Comments:
(1) Pro forma amounts for all periods presented exclude the effects of loss on discontinued operations, amounting to ($17,517), $0, $4,715,($3,595), ($2,225), ($3,810), ($5,230), $0, ($64), ($166), ($990) and ($1,220) respectively.
(2) Pro forma amounts for all periods presented exclude the effect of investment related amortization, amounting to $$1,580,$1,904,$1,236, $1,680,$1,773,$1,281,$1,281, $890,$890,$890 and $890, respectively.
(3) Pro forma amounts for all periods presented exclude the effect of In Process Research and Development related to Q1 00 Netridium acquisition, amounting to $2,625 for Q1 of 2000.
(4) Pro forma amounts for all periods presented exclude the effect of Cisco stock related transaction, amounting to $35,045 for Q3 00 and ($21,187) for Q2 01, respectively.
(5) Pro forma amounts for all periods presented exclude the effect of gain on sale of land in Q4 00, amounting to $1,811 for Q4 00.
(6) Pro forma amounts for all periods presented exclude the tax effect of Cisco stock related transaction, amounting to $14,018 for Q3 00 and ($8,475) for Q2 01, respectively.
(7) Company's effective tax rate 17% and 15% for year 2000 and 1999, respectively.
Source: Company Reports and CEUT Estimates.
-29.2%
Chg.
YoY
Seq.
-31.2%
Diluted
Shares
C.E. Unterberg, Towbin
ESS Technology
7/18/2002
Balance Sheet ($ 000's)Balance Sheet ($ 000's)
ASSETS
Cash & Equivalents
Short Term Investments
Accounts Receivable
Inventories
Deferred Income Taxes
Prepaid expenses and other assets
Net assets of discontinued operations
Total Current Assets
Notes Receivable
Net PP&E
Other Assets
Total Assets
LIABILITIES & SHAREHOLDERS' EQUITY
Accounts payable
Income taxes payable and deferred
income taxes
Accrued Liabilities
Total current liabilities
Long-Term Debt
Other long-term liabilities
Non-current deferred tax liability
Minority Interest
TOTAL LIABILITIES
Shareholders' Equity
Total Liabilities & Shareholder Equity
VALUATION RATIOS
Book Value Per Share
Cash Per Share
Current Ratio
Net Working Capital
Quick Ratio
Return on Assets *
Sales/Total Assets *
Long-term Debt/Equity
Return on Sales *
Return on Avg Equity *
DSOs
Inventory Turns
Days Of Inventory
Source: Company Reports and CEUT Estimates
FY1998
Dec-98
65,752
16,719
37,830
22,882
6,372
4,142
FY1999
Dec-99
Q1
Mar-00
Q2
Jun-00
FY2001
Q3
Sep-00
Q4
Dec-00
Q1
Mar-01
Q2
Jun-01
FY2002
Q3
Sep-01
120,296
89,722
78,573
63,847
10,758
5,100
368,296
45,227
13,387
38,390
85,343
59,988
12,579
37,518
60,543
83,508
16,529
35,550
46,938
2,780
46,131
258,573
31,405
213,752
2,303
29,066
201,997
3,034
153,697
152,933
47,608
46,702
46,132
10,758
2,196
306,329
25,715
33,123
51,884
98,940
12,957
271,197
134,870
54,235
56,995
51,605
10,758
2,969
311,432
38,000
22,948
214,645
40,564
9,266
321,027
41,548
14,071
367,051
39,117
12,953
358,399
37,874
8,666
414,836
31,081
4,737
294,391
28,821
5,151
247,724
57,930
72,303
74,206
23,511
72,331
70,300
14,643
12,285
19,315
36,265
72,573
84,588
93,521
19,547
29,927
72,985
108,596
72,573
142,072
214,645
52,860
137,448
183,579
321,027
79,907
173,428
193,623
367,051
78,325
151,310
207,089
358,399
75,869
184,465
230,371
414,836
Dec-98
$3.50
$1.62
2.1
81,124
1.8
20.7%
144.7%
0.0%
14.3%
11
33.5
11
130,913
50,618
34,362
42,347
FY2000
Jan-00
Dec-99
$3.93
$3.89
3.2
186,609
2.7
13.8%
96.8%
0.0%
14.3%
48.3%
35
5.3
69
Q1
Mar-00
$4.13
$4.03
3.3
217,911
2.8
13.3%
85.8%
0.0%
15.6%
50.6%
62
4.1
89
Q2
Jun-00
$4.31
$4.18
4.2
233,344
3.6
15.1%
91.3%
0.0%
16.5%
27.6%
54
4.3
85
Q3
Sep-00
$4.99
$4.55
3.4
259,700
2.8
15.4%
81.9%
0.0%
18.8%
30.2%
82
3.3
111
Q4
Dec-01
96,995
32,039
42,642
37,452
Q1
Mar-02
154,307
52,657
40,149
37,501
2,538
185,559
1,894
211,022
287,152
27,294
5,810
235,101
25,576
4,794
215,929
22,438
4,505
237,965
20,845
7,731
315,728
54,055
38,857
43,597
49,173
54,265
3,601
2,518
3,434
5,364
4,883
8,850
73,901
56,573
42,291
48,961
54,056
63,115
9,061
9,061
9,061
9,061
6,931
6,932
82,962
211,429
294,391
65,634
182,090
247,724
51,352
183,749
235,101
58,022
157,907
215,929
60,987
176,978
237,965
70,047
245,681
315,728
Q4
Dec-00
$4.73
$1.32
3.5
184,672
2.2
19.1%
103.1%
0.0%
18.5%
26.9%
90
1.5
241
Q1
Mar-01
$4.30
$1.38
3.8
157,179
2.3
14.8%
109.3%
0.0%
13.5%
17.7%
69
1.9
197
Q2
Jun-01
$4.17
$1.65
4.8
159,706
3.3
11.5%
108.9%
0.0%
10.6%
13.7%
53
3.0
120
Q3
Sep-01
$3.48
$2.20
3.8
136,598
2.8
8.0%
111.4%
0.0%
7.2%
10.2%
45
3.9
93
Q4
Dec-01
$3.86
$2.81
3.9
156,966
3.2
11.8%
114.0%
0.0%
10.4%
15.6%
47
5.2
70
Q1
Mar-02
$5.08
$4.28
4.5
224,037
4.0
15.1%
94.9%
0.0%
15.9%
23.7%
46
4.8
76
Exhibit 27
Exhibit 28
Page 1
Bloomberg News August 5, 2002, Monda y
56 of 86 DOCUMENTS
Copyright 2002 Bloomberg L .P.
Bloomberg News
August 5, 2002, Monday 3 :33 PM Eastern Time
LENGTH: 356 words
HEADLINE : ESS TECHNOLOGY FALLS ON BARRON'S NEWSPAPER REPOR T
BYLINE : J . Kyle Foster in the Princeton newsroom (609) 750-4647, or kfoster2@ bloomberg . net . Editor: Rothenberg,
White .
DATELINE : Fremont, California
BODY:
ESS Technology Inc . shares fell as much as 23 percent after Barron's reported that third-quarter sales at the maker
of microchips for digital video-disc players will disappoint investors as rivals take market share .
The stock fell 99 cents to $10 .71 in at 3 :18 p .m . New York time on the Nasdaq Stock Market after falling as low as
$9 .01 . The shares already had lost 45 percent of their value this year .
On June 24, the company increased its third-quarter sales forecast to $86 million to $90 million from $82 million to
$87 million . ESS Technology is expected to have revenue of $88 .9 million, the average estimate of six analysts polled
by Thomson First Call .
Barron's said in this week's edition that the chipmaker's gross margin, or the share of sales left after paying production costs, may fall to 38 percent from as high as 50 percent . Peter Andrew, an analyst with A .G. Edwards & Sons Inc .,
said the company's gross margin has never been 50 percent .
"I wish they had been up there," Andrew said in an interview . "They have never been up there ." He has a "strong
buy" rating on ESS Technology and said he doesn't own the shares . A .G . Edwards buys and sells ESS Technology
shares, the firm said in a statement.
Gross Margin
ESS Technology's quarterly gross margin has not reached 50 percent since at least mid 1997, according to
Bloomberg data. The Fremont, California -based company first sold shares to the public in October 1995 .
"We absolutely stand by our story," said Steven Goldstein, vice president for Dow Jones and Co ., which is the parent company of Barron's and the Wall Street Journal .
The article said without citing anyone that the company may lose market share to Taiwanese rivals including Via
Technologies Inc ., Ali Corp . and Sunplus Technology Co .
"With respect to competition and pricing, that's an issue that has been bugging them, and Zoran (Corp .), for about a
year now," Andrew said . "I would be paying attention to what the company is doing and its valuation ."
UPDATED-INFO : Adds Dow Jones comment in seventh paragraph . Updates share price in second .
LOAD-DATE : August 6, 2002