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Technology Stocks : WDC/Sandisk Corporation

WDC 181.54

+1.1%

Dec 26 9:30 AM EST

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To: Zeev Hed who wrote (16180)	10/29/2000 9:25:19 AM
From: orkrious	of 60323

Zeev, I have been reviewing the DSO issue and want to clarify a few of the other issues raised in recent posts. Another concern is the relatively thin margins, if you take out the $25 MM in "non operational gross profits, you are left with about $15 MM in operational profits and that is barely 10% of product sales, not a healty enough gross margin if this sector proves to have similar cyclicality as the rest of the industry. Margins have been improving for the last several quarters. Just looking at the last two years: Q3 00 32.9% Q3 99 25.5% Q2 00 31.1% Q2 99 30.7% Q1 00 30.2% Q1 99 26.2% Q4 99 27.3% Q4 98 23.5% In fact, Eli said at the annual meeting that Q1 00 was the first time that they had profitable results from operation (excluding royalties) Regarding sales, Eli has guided analysts to 15-20% sequential growth in product sales. Look at the following table and you will see growth exploding. Knowing what we know about the embryonic stage of the digital camera market it is hard to make a case for the growth abating Product Sequential Sequential YOY YOY Sales Growth Growth% Growth Growth% Q3 00 151.8 29.2 23.8% 94.2 163.5% Q2 00 122.6 25.4 26.1% 80.3 189.8% Q1 00 97.2 27.3 39.1% 61.3 170.8% Q4 99 69.9 12.3 21.4% 39.7 131.5% Q3 99 57.6 15.3 36.2% 33.5 139.0% Q2 99 42.3 6.4 17.8% 18.8 80.0% Q1 99 35.9 5.7 18.9% 10.5 41.3% Q4 98 30.2 6.1 25.3% Q3 98 24.1 0.6 2.6% Q2 98 23.5 -1.9 -7.5% Also note the large sequential percentage increase in Q1 00. I believe Aus has noted that when it comes to consumers, there is always likely to be an extra "kick" to sales from people in Q1 who bought a camera for Xmas but discovered they really need an additional card. These sales hit in Q1. As the retail channel becomes an ever larger percentage of sales (made possible by the added capacity) the Xmas "bulge" will really be in Q1. One other thought RE DSO's. This comment was part of the recent Q3 earnings press release Availability of Flash memory from the three fabs at UMC and from our partnership with Toshiba improved significantly in the second half of the quarter. It may be that because of the significant capacity addition, there was a large "lump" shipped near the end of the Q that shows in A/R. Given all of the above, a call to IR should allay everyone's fears about a slowdown. It just cannot be happening. Jay

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