|Top 10 reasons to buy and hold ESST, buying more on any dips.|
1) ESST DVD chips dominate the best selling US brand (Apex, a low-cost budget brand). Apex has beaten Sony to become #1 selling DVD-player in USA and has excellent reviews at Amazon and others. ESST chips also in various Aiwa, Kenwood, Panasonic, Philco, Philips, RCA, Samsung, Sanyo, Sharp, Shinco and other DVDs.. The company is also included in reference design platforms with servo control and loader partners Panasonic, Toshiba and Samsung.
2) Most important thing is product growth – are we near saturation (as in PC, cell-phones) or way to go. DVD-player is the fastest growing consumer electronics item *ever* and DVDs are replacing and will replace every VCR on earth; USA leads in new tech adoptions as usual, with 30% having DVDs, UK at 14%, India and China still mostly VCD (Video on CDs, the poor man’s version of DVD. VCDs play on VCD and DVD players, the former being much cheaper. ESST is the clear leader in VCD too, check recent company releases). Check out these recent articles. nytimes.com (free registration req’d) “most successful home entertainment device in history…Nothing else has come close to doing that in such a short time, not CD's, not VCR's, not personal computers, not even television itself.” online.wsj.com “pursuit of inexpensive entertainment in a weak economy are two long-term trends fueling demand for DVDs” (suggest economic and consumer slowdown will not only not hurt DVD growth but will help it.)
3) Every middle class family in the*world* has a VCR. If in America the consumer has chosen budget Apex as #1 DVD choice to replace the VCR, so will the more budget-oriented customers in Asia, Africa, South America. The exact same low-cost DVD that is called Apex in USA has entered the Australian market (and parts of Europe) as Hiteker and other world markets as Raite, Shinco, and VDDV; all have the same ESST components, just different names.
4) Very recent news even more bullish for ESST. Next generation DVD machines (play+record) are just starting and set to benefit ESST even more. People who are buying DVD-players will replace them with DVD-recorders (just as VCP was replaced by VCR). So a double buy from the same consumer down the line.
5) Excellent valuation. Compare to others such as ZRAN, CRUS etc.Low PE, high growth. Can you find another big growth leader with this cheap valuation?
6) Continuing higher R&D spending at ESST leading to wins in devices facing extraordinary growth. They spend more on R&D than ZRAN, even though ZRAN is the newcomer and is also in other products such as digital camera. (Shorts are claiming ESST R&D is low as a percentage of revenue compared to ZRAN and that is suspect; sure, ESST dominates and has 2.5 times+ the revenue of ZRAN so once they develop a new chip they sell 2.5 times more of them, thus makes sense their R&D dollar is a smaller part of revenue). See growth numbers in recent ESSS Press releases. “We believe that our progressive scan product shipments will grow from about 50,000 units in the March quarter to over 1.0 million units during the current quarter.” Only two companies (ESST and ZRAN) have Progressive Scan technology which is becoming standard in DVDs nowadays and they have had it for an year; shows their long lead over the rest. Shorts talk about Mediatek as a competitor that will cause prices to fall, but Mediatek even now can’t do Progressive Scan; meanwhile ESST/ZRAN will be shipping DVD-R in volume this year.
7) Chan family which founded the company, but do not run it any more, had more than 34% of the shares and sold shares at request of board to increase liquidity of ESST. Board made this request as the urging of investment houses who wanted ESST to be more a public company rather than a family-owned outfit. From the First Quarter 2002 Conference Call: Chans have reduced it from 34% to 20%, are done with selling.
8) A hedge fund laggard (as in “underperform their peers”) called Rocker Partners is stuck with their shorts, along with a couple of their cohorts. They have been sending their rabid wrestler called Marc Cohodes around to slam ESST. A fund low on brains and high on hyperbole. Cohodes even got Barron to publish a false figure saying ESST margins were 50% in 2001 and declining to 38% in 2002. Barron’s had to print a retraction one week later admitting that in 2001 margins were 33.6% (so margins actually up!). Here is more on Cohodes’ attempts against ESST, Subject 53209 . They sold short 50% of the float and now have to cover. Means *huge* buying ahead, could be one of the greatest short squeezes. Again, a laggard fund known for making terrible mistakes. And if you can see the writing on the wall from this month’s articles above on DVD growth, you can bet the longs had it right.
9) Bad sector. ESST/ZRAN make chips and semiconductors are the worst performing tech. But DVD player chips are having extraordinary growth while the rest (PC, cell phones) have no growth. The market threw the baby out with the semi bathwater, and that is the opportunity to be smarter and differentiate before the market does. The market always comes to its senses eventually.
10) Many other reasons posted on Yahoo ESST board by very smart longs. |
