Broozer,
And inventory is piling up. I think that is one reason why we are already seeing such aggressive pricing.
Re: Inventory Levels
Yes, you are correct that Inventories have been building up, but I would take a stab in the dark that SNDK gets a little more revenue in the 4th Quarter when compared to other quarters given the Holiday season and retailers ensuring they have enough inventory to sell so when a user buys a digital camera (for example) they will have extra flash available to sell.
Looking at it on a historical basis, in Q2 2003, inventories were at 74.5m and in Q3 2003, inventories were at 94.8m; therefore, sequentially, inventories increased about 27%.
In Q2 04, inventories were at 163.5m and Q3 04 181.3m and inventories increased about 10.9%.
Sales, looking at Q3 04 v. Q3 03 also increased about 40%.
As such, I wouldn't focus too much on the inventory issue given this is somewhat of a retail product which I'd reckon sells the most in Q4 and some sales go into Q1 of the next fiscal year. Moreover, on a YoY basis, sales have increased substantially and SNDK in view of increasing sales will carry more inventory on their balance sheet. Inventories have increased about 100% YoY and, of course, I'd watch inventory levels, but I have a feeling that when they report Q4 numbers, inventory levels will fall.
Re: Pricing
I believe that the decline in flash prices is not attributed to the increase in inventory, but rather the production of a "commodity-like" product. As Art has stated on numerous occassions and I will repeat here, when you produce a commodity product it is imperative that you are the lowest cost producer.
Furthermore, the decline in pricing was also simple economics. SNDK was enjoying outstanding returns selling Flash and their DRAM counterparts were seeing this and planned to enter the market. SNDK took the step to reduce agressively their pricing in order to lower their overall returns and, also, send a signal to their DRAM "cousins". In effect, the signal that SNDK is sending is that they will protect their turf using any means necessary and make the business of producing flash economically unfeasible unless one can enter with full economies of scale.
RE: dilution
I do not consider a secondary offering as "dilutive" since existing shareholders can always sell the stock. While one will face "ownership dilution", they do not face "economic dilution". Economic Dilution occurs when MGMT doles out stock options (in excess of course) to themselves and their employees.
Later,
Dave |
