I listened to the conference call and have the following comments:
1. Eli says they will be "disappointed" if revenues for 2001 are only up 30 percent. How many companies out there, even in high growth areas would be disappointed at such a "low" growth rate.
2. Eli says margins are expected to be lower, but he attributes that to weaker sales in the first two quarters, plus continued costs for the FlashVision joint venture in Virginia, expected to start producing my mid year. In terms of earnings projections (which Harari did not want to make), he said the start-up of FlashVision is critical here. They will make 512 mb and 1 gb cards in this facility.
3. Eli just returned from Japan (where OEM sales dropped off in the last quarter), and where the Japanese economy isn't all that strong. He said, however, that the Japanese OEM people expect 2001 to be a "great" year, as opposed to 2000, which was only a good year.
4. We should expect weak sales and profit growth in the first or first two quarters of 2001, due mainly to inventory corrections and pricing pressures. Inventory corrections occurred because of a slowdown in orders in the last quarter, and it will take one or two quarters to get the inventories down to a reasonable level. In the meantime, SNDK expects to exercise cost controls and other management initiatives.
5. SanDisk is gaining market share, if anything. In 2000, their market share was about 28 percent, and Harari expects it to be well above 30 percent in 2001.
6. Sales of MP3 players were less than expected because of uncertainties over which types of cards should be used. He expects that MP3 players with SD cards will have greatly improved sales, particularly in the second half of 2001. Similarly, he is optimistic about applications in cell phones, set top boxes, and PDA's, especially the new Palm.
7. Royalties for the first part of 2001 should be lower, partly because of "retroactive" royalties paid in 4th Q 2000 by Lexar. Eli expects royalty income for the next 2 quarters to run around $15 million each quarter.
8. Overall, Eli sees new markets becoming very large--in five areas: (1) Digital cameras and camcorders; (2) SD cards, which are about one year behind schedule (see above); (3) Internet enabled cell phones and PDA's; (4) Industrial and telecom infrastructures, including replacing hard disk drives with flash drives; (5) Flash component sales for set top boxes and Internet appliances.
I have only one request for all those who read these comments. Please sell whatever shares of SNDK you own in order to give me a better buying price. Sure, 36 after hours looks great, but I really want bargains!!
As to the financial data, you can all draw your own conclusions, but I would simply point out that book value per share went from about $8.50 in 1999 to $12.00 in 2000, a gain of better than 40 percent. In other words, the shares you held over this period appreciated in book value by more than 40 percent, which is the best measure of wealth that we have. Of course, the book value excludes the value of the patents, which don't show up on the books. Comparing this data with other technology issues, you will find that most fast growing companies typically sell at 10 to 20 times book value per share. If you take the lower range, you get a price of better than $80, or more than twice where the stock is now selling.
One more thing, there was a question asked by a Merrill Lynch analyst. It should be interesting to see what Merrill does with this latest report.
Art Bechhoefer |
