Observations on the numbers and Q3 calculations:
From the CC, Megabyte growth was 40% for the quarter, the same as last quarter. That is what we wanted to hear.
Product revenue "only" grew 26%, however. They commented that Price/Megabyte was down 8%. This was not because of actual price decreases on flash, it was because of mix changes. More multi-media cards, more chip sets, more higher density cards. (32Mbyte chip-set is cheaper than 32Mbyte CF card, MMC cards are cheaper than CF cards, 64Mbyte card is cheaper than 2 32MB cards,etc.) I suspect a little sand-bagging from Sandisk on the product side, because the royalty earnings were so high. By their own numbers, product revenue should have grown 29%(1.4*.92)
Anyway, I am going to predict 35% growth for the product revenue for Q3 over Q2, which is the growth rate from Q4 99 to Q1. We should get 40% growth in megabytes again, which is the real key, decreased a little by mix changes. Pricing is still firm, demand is incredibly strong.
The really great news from the numbers was the big increase in royalties, which nobody (myself included) was expecting. (Compare to RMBS, 6.6M in royalty income, 17M total revenue for the quarter and a 9 billion market cap)
All we have to go on for the royalty number is their guidance, a minimum of 17M.
I'm going to go with 19M, since Sandisk management is so conservative. Let's hope for continued increases, but the CC made it sound like this quarter was something of a spike. Still, it is clear that the royalty number will continue to grow as the total market grows. That is outstanding.
Gross Margin---increase 1% to .31. This really is a pretty lousy gross margin.
It is being held back by price increases from the foundries, and start-up yield problems on the die shrinks. In an odd way, I almost view this as a plus.
The numbers are looking good now, and they have a lot of room to improve as the gross margin improves. Die shrinks and yield improvements should get it into the high 30's in a few quarters, and GM will improve dramatically when they start shipping from the JV fab with Toshiba. When DRAM was severely allocated a few years back, Micron and the other DRAM guys had 70% GM's.
I am only using .32 as a prediction for Q3. If they can get it to .35, that would be worth an extra .04 on EPS in Q3.
Operating Expenses---4.5M (18%) increase in operating expense for Q2 over Q1. I suspect a little sandbag here also as they threw expenses into a good quarter. Let's hope it doesn't continue to grow 18% a quarter. Estimate- 30M for Q3.
So using above estimates:
Product Revenue = 165M
GM=.32
53M in Gross Profit from Product, 19M in royalties
53+ 19 =72M in total Gross Profit
72M -30 =42M in operating profit
Add 6.7 million in interest and other income(same as Q2)
48.7*.65= 31.525M income after taxes =.44 EPS
I've used some fairly aggressive assumptions, but I just feel that Sandisk's conservative management must have held a little something back for Q3 since Q2 was so good. |
