Louis Tomasetta, chief executive of Vitesse Semiconductor Corp., is buying stock in the Camarillo chip maker as the shares trade below their initial public offering price of a decade ago.
Tomasetta, a company co-founder, has purchased 200,000 company shares since mid-August for as little as $1.18 each, according to filings with the Securities and Exchange Commission. In December 1991, Vitesse sold shares through an IPO at $1.50 each, adjusted for stock splits.
Because Vitesse specializes in developing integrated circuits for the telecommunications business, its revenue has declined as telephone companies curtailed capital spending amid a capacity glut. Bleak forecasts have pushed Vitesse shares below realistic levels, Tomasetta said.
"If you listen to some of the analysts, the assumption is that we are running out of cash and are going to go out of business," Tomasetta said. "Today we are selling at barely one times revenue, which is extremely low for a technology company, especially one that has markets with long-term potential growth."
Selling at one times revenue means the market value investors have placed on Vitesse is about equal to the revenue it generates in one year. When the telecommunications industry was booming in early 2000 and Vitesse shares reached $115 each, the company's market capitalization of $18 billion was about 27 times its peak annualized revenue.
Tomasetta said his purchases were his first on the open market in five or six years.
Last year, Tomasetta generated about $13.8 million in profit by selling Vitesse common shares, according to an SEC filing. He exercised options to purchase 200,000 common shares at $5.63 each and then sold the stock on the open market in January 2001 for $74.36 to $75.75 a share.
At the time of the IPO in 1991, Vitesse generated quarterly revenue of about $10 million, Tomasetta said. Vitesse now is realizing about $40 million in revenue each quarter.
Analysts say Vitesse's financial condition has become more precarious because it has about $452 million of bonds outstanding, compared with about $472 million of cash and short-term securities that the company held as of June 30.
Vitesse has "a weaker balance sheet relative to comparable companies," said Paul Brandeis, an analyst at Needham & Co. "The end markets they are serving continue to be very weak without much near-term visibility for a return to growth."
Vitesse Semiconductor has been buying back its convertible debt on the open market, paying about 70 cents for each dollar of face value. This lowers the amount of debt that the company will have to repay when the bonds come due in March 2005.
"We have cut our costs to the stage that if we continue to buy back bonds at a discount we will have plenty of cash to get through the downturn," Tomasetta said.
Vitesse shares fell 5 cents to $1.36 in Nasdaq trading Wednesday.