WDC/Sandisk Corporation Message Board

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Technology Stocks : WDC/Sandisk Corporation

WDC 139.09

-0.8%

3:59 PM EST

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To: TREND1 who wrote (19618)	3/14/2001 2:11:30 PM
From: Art Bechhoefer	Read Replies (1) of 60323

Larry, if most SanDisk revenues come from sale of what is essentially a commodity rather than a proprietary product, then gross margins would be reduced by 20--30 percent. That is, a product covered by patents, and one which can be produced by others only through a licensing and royalty agreement, will generate much higher gross margins. Another way to look at the difference between commodity and proprietary products is to consider the difference in return on assets. A commodity product implies big plants and economies of scale. A proprietary product might generate revenues without any plant or brick and mortar assets whatsoever. To see a dramatic example of the value of proprietary technology, look at QUALCOMM, which has the most extensive portfolio of patents for wireless communication of any company in the world. The significant measurement here is the combined operating earnings plus earnings from licensing fees and royalties per share as a percentage of book value per share. The other factor to note is that if you are a commodity producer, then you better be the low cost producer or you're going to get killed. SanDisk may get some advantage here from its new Manassas, Virginia joint venture with Toshiba, but it can't get any advantage from products coming out of Taiwan, as those factories produce chips for many other companies as well. The advantage of having exclusive proprietary technology is that you don't have to be the low cost producer. You need only produce or let other produce and give you a cut! Art

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