SSTI vs. SanDisk
I am not investing in SSTI for reasons other than EPS. If you wish to make an argument based on EPS growth, please also comment on the current tax rate for SSTI.
Recall the differences in target markets between the companies. They don't overlap currently, so holding both companies may not be a bad play. As Joe pointed out, this may create a bit of a lopsided portolio.
In the long run I see SSTI's biggest problem is the fact they have licensed their technology in return for production capacity. This seems a bit focused on near-term success, rather than long-term growth. SSTI is destined to remain fabless and I believe there is a risk to that. Second, despite the advantages of Superflash with respect to scalability and lower cost manufacure, if target applications continue to demand more in the way of capacity there are other stronger competitors in the field (AMD, Intel,...) who may have more resources available to meet the challenge. I also see the lower density embedded market as more crowded than the upper end (where SanDisk lives) where the technological limits are continually challenged and advanced. Ultimately some of these leading edge producers may have embedded products which can compete favorably. Tight supply lines currently allow SSTI to flourish as competitors are distracted.
I think the way in which SanDisk leverages its IP, their FlashVision JV to guarantee in-house production needs for the intermediate term (late 2001) and beyond, their focus on consumer megamarkets and their ability to enter/threaten/supply the lower end of the flash spectrum at their chosing is a distinct advantage. Entering the upper-end of the flash market is just not a reality for SSTI for the present time. It appears to be a one-way street.
Finally, to return to the EPS estimates, I think SanDisk's strength or weakness will be revealed in earnings next month. I simply don't see how a 30-50% increase in capacity Q-over-Q will translate into only a penny's worth of additional EPS in Q2. Also, we need to have an idea about the trajectory of the royalty growth as Eli was quite boistrous about royalties in the On24 interview. There may be something cooking there.
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