Suresh, please differentiate between what I think a stock will do and what might be fair valuation. this $5/share is really only $4/share since RMBS will continue marketing support and R&D and that should account for 20% of revenues. Of this $4/share the various governments (Fed, State) take about 45% (I have seen many companies with smart accountants getting down to 35%, but mostly because of heavy depreciation charges and R&D tax benefits), so assume 40% tax rate, that leaves you with "peak earnings" of $2.40/share (on your $50 Billions of DRAM). Let's assume, however, that DRAM will be 60% of all earnings (as per Tate's most recent pronouncements), and you get back to $4/share peak earnings.
I think that a fair valuation on this is about $100/share. So, why am I bullish on RMBS? Because it now has momentum and shorts to fuel it to overvaluation.
At the current $140, I believe that a lot of the good news (the whole dram industry pays royalties, what more is there?) is discounted, and we should brace ourselves not to ride this "too long", since once the semi cycle turns, DRAM sales may actually decline and with them the forecasts of future royalties. One of the forecasts from the most optimistic people is that by 2004 DRAM will already be declining and annual sales would get back under 60 Billions (from what they believe will be an annual peak of $75 Billions).
Zeev |
