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Technology Stocks : FLSH - M-FLASH SYSTEMS DISK PIONEERS

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To: P.M.Freedman who wrote (884)	7/28/2002 3:26:15 PM
From: rjk01	Read Replies (1) of 923

Merrill Lynch sees M-Systems achieving 2002 growth target The investment bank says the Mobile DiskOnChip product will be the key to the company’s long-term success. Globes' correspondent 23 Jul 02 20:20 Merrill Lynch believes that M-Systems Flash Disk Pioneers (Nasdaq: FLSH) is capable of achieving its 30-35% revenue growth target for 2002. The investment bank says that M-Systems’ better than expected second quarter results were due in part to revenue of $14.7 million, above the pre-announced $14 million, and notes that “in fact, revenues continued to rise sequentially as they have since the low point of the second quarter of 2001.” Merrill Lynch analyst Ilana Treston calculates that meeting the growth target for 2002 “now implies only 10%growth per quarter on average for the rest of the year, effectively lower than quarter-on-quarter growth rates in Q1 and Q1.With Book-to-bill ratio above one and good backlog and indications for Q3 we believe this is possible. ”We anticipate that gross margins should improve slowly as DiskOnChip begins to hold its own as a percentage of sales and as M-Systems gains more traction with DiskOnKey and can take advantage of lower production costs through expanding its production base (it just signed with a second Chinese plant),” the report continues, but warns that “a factor that will affect margins going forward is the company’s expectations they will have to engage in legal activity to protect their patents. “We continue to believe that the real key to M-Systems’ long term success and profitability is their ability to bring in key customers for their Mobile DiskOnChip. The company has set as a goal to close the year with design deals with a couple major customers (of which they already have one with at least one design win for one mobile product which should bring in around $1m in revenues in Q3). “The payout of this plan if it succeeds should come in 2003. Effectively they have to dislodge Intel from at least some designs and leverage their relationship with aggressive Toshiba whose strong market tends to be gadgety Japan and Korea. . “We anticipate that M-Systems may hit breakeven by the first half of 2003 if they hold expenses tight, benefit from economies of scale and succeed in some penetration of the cellular world. “We are adjusting our model to these assumptions.We are raising our revenue for 2002 from $57 million to $59 million, and lowering our expected loss per share from $0.28 to $0.25, which should balance the legal costs with some margin improvements and continued cost controls,” the report concludes. Published by Globes [online] - www

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