Conference Call...
by: spectracide 04/15/04 07:36 pm
Msg: 33355 of 33419
You need to listen to the conference call to get a perspective versus the press release...(by the way, the call doesn't start until minute 32).
First, they say that the sudden decline in profitability was due to a sudden 20% price reduction being offered to all retailers by their largest competitor (re: Sandisk). They chose to react to this to maintain market share and keep the retail outlets. The impact of this decision is an immediate 100% hit to gross margin resulting in the new forecast of breakeven.
Second, they say this forecast does NOT include any potential cost reduction from Samsung that would then fall to the bottom line improving profitability. This is the key question for investors...will Samsung reduce their cost to LEXR. LEXR says yes, that with new NAND suppliers coming on-line to compete, they will have no choice, but they don't know for sure or what that will be and thus chose not to forecast this (they could have handled this much better in my opinion for the investment community).
Third, they maintain that they will still make $.60 for 2004, which means that GM rates must move upward into the mid-20's from the current 17% - a major increase. They feel that they can get their costs in line. However, I didn't care that much for their response to the analyst raising this issue.
IF - and this is the whole ball of wax for LEXR - they can get Samsung to reduce their price (and thus lower the cost to LEXR), then profitability can quickly return and the stock price would react to this accordingly. My feeling is that Samsung will have no choice, becuase otherwise LEXR will go one of the new fabs if need be. But this is a real open issue.
It appears that the revenue growth is legitimate and possibly even conservative given the new retail wins, and the new product avenues (particulary cell phones).
We will see...
But we always have to remember that if SNDK did this to the industry this time, they may do it again if they don't see share improving and that could hit FLSH once again. It's a real quagmire right now.
This stock could be a future gem at this price (assuming $10 - $12) or could go down to $7 if gross margins continue to be squeezed.
At some point, you would think the competitors would stop killing themselves. When there is such dynamic demand, there usually is no need to drop the price this much, but people are fighting for share.
Good luck.
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