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Technology Stocks : WDC/Sandisk Corporation
WDC 290.50+7.5%12:25 PM EST
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To: broozer who wrote (27109)12/7/2004 4:30:55 PM
From: Art Bechhoefer  Read Replies (1) of 60323
 
$17 for SNDK? That would mean a forward looking PE of about 10, or it would mean that earnings will be drastically reduced.

If unit sales remained flat and mb/unit also remained constant, then the scenario you have in mind is a possibility. However, everything I've seen in terms of expanding demand points to much greater unit sales, more mb/unit, and lower unit costs. So the lower prices received per unit do not necessarily mean drastically lower profits per unit but suggest instead a continuing improvement in productivity sufficient to enable a reasonable profit at lower unit prices.

And if price cutting is as severe as you evidently assume, then the first casualties will be the higher cost producers or the resellers stuck with higher priced inventories. SNDK has been moving its flash memory production partly be introducing new products using flash memory. In other words, SNDK is creating new demand, which helps control what many believe is excess inventory levels at present. We'll know more about this when the financial statement comes out late January or early February. But from the anecdotal evidence I've seen, the earnings are going up, and so will the stock price.

Unless the entire world economy goes to pot in the next six months, I expect SNDK will reach $30 long before it reaches $17.

Art
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