Hi Rex, Mike, Jim,...and All,
Sorry for not answering questions regarding embedded market, Mike did it pretty well. I could't have done it since I know close to nothing in that market. The only thing I can tell is to take a look at M-Systems (FLSHF), it could be a winner.
As regards the impact of Asian economic crisis, we're a bit in the black if I may say so.
What we know :
1/ SanDisk buys wafers in Japan, invoices are paid in JPY. No currency swaps or futures to hedge the currency risk according to 10Q.
2/ USD recently rose to a 12month high against the JPY. Wafers are thus getting cheaper.
3/ In July, SanDisk committed itself to pay $45M to UMC for the Taiwan foundry. Since then (especially in October) Taiwan Dollar decreased in value against the USD. This should make the foundry less expensive. Nope, according to 10Q, SanDisk preferred to pay before the end of Q3 whereas it was bound to pay in April '98. Not a Smart move!
I say NO NO NO, because appliances needed in the semi-manufacturing facility are made in the US and are denominated in USD. (Relief !) The only thing that's paid in TWD is the building,...
4/ Asian growth goes slower, I say OK but the GDP growth rate in the region is still higher than western countries, i.e. above 3.5%. Sales of mobiles should thus grow albeit at a slower than anticipated pace.
5/ Japan is in trouble. Sorry, but this is hardly a news. Japan has been in trouble for years now. Consumer confidence in that country could be affected but it's already so low. Real interest rates there are below zero. Thus : Japanese should keep on spending, at least for what they like...guess what!? Cameras and mobiles!
This was quite optimistic but remember that SanDisk is in an entirely new market. Growth might be big, Big or BIG, the question is thus how 'big'?
Everything is relative. I'll come back on this below while we come to numbers.
IMPACT OF MMC :
As already underlined by Rex, (sorry Rex,I double-checked the numbers), there were approximately 51,000,000 mobile phones sold in 1996 (my numbers are a bit higher). According to sales figures given by Nokia, Ericsson and QCom, sales were brisk this year in some regions of the market. 1997 begun very slowly. All in all the world mobile phones market keeps growing at fast pace (sorry I lost the figures, does anyone have them?).
Question : do we need market growth or do we first need the market?
Answer : the market is already huge. SanDisk couldn't even keep up with demand.
Conclusion : SanDisk needs more capacity, SanDisk must licence the technology. They already said so. We're on the right path.
From 10Q : Harari Says : "licencing is needed to open the market in order to enable the creation of MEGA MARKETS". His aim is thus very humble, he just wants to be the source and beneficiary of a MEGA market. He has the will and the might to do so.
Let's take a closer look at figures:
Rex said 2.8M smart phones to be sold in '98 and close to 7M in '99.
Those figures are quite low but they're enough to make the stock move substantially.
Let's take 2,000,000 MMC sold by SNDK in '98
Lets' take the 2MB, which carries the lowest price and lower margin : $26
We thus have revenues of $52M.
Let's assume the gross margin on that product is very low : 20%.
Let's deduct operating expenses and taxes of 35%.
We have after tax profit of : $6.3M
Ah ! The number of shares could change in the future. But the dilution should not be a big deal. Priced at $30. We'd get a 12% dilution. That's nothing if you look at the return you'll get from the $90M
Indeed, $90M equals roughly 60% of current Balance Sheet.
ROE and ROA should get a big boost!
We thus have 25M shares + 3M shares = 28M shares.
Profit of $6.3 gives EPS of $.22
Now take the market figures in 99 and beyond and make your homework.
I already did it. The results are just to good to be true as Ed Plopa posted. We have a winner and we don't even know how rich this winner will make us!
ML's Kurlak's gonna come with new numbers soon, the stock could firm up around $30.
Thanks for your comments.
Jerome |
