OK, here's the skinny from Vinni. Let's put all the joking aside and try to figure this out together. Here are the main points from recent analysts' reports.
* Contrary to what I flamed before, the Asian crisis is also actually good for Creaf, too. Weaker currencies in Southeast Asia reduce some manufacturing and component costs.
* Margin growth has been the key driver behind this stock (not just sales growth as we were arguing about before). Part of that margin growth is due to the increased SALES, however, of the high-margin AWE64. DOES ANYONE KNOW IF IT HAS STILL BEEN INCREASING ITS POSITION IN THE SOUND CARD BUSINESS? It ALREADY accounted for most of the sales in that category as of October, so is this even possible? Serious responses only. (Not: "Yeah man, I saw 'em down at the Staples and they look pretty bitchin' to me.") You lurkers who actually know something, it is time to pitch in and give a hand.
* How about the spending side? Restraints there have also helped boost margins. (Remember, margin growth has been a big factor in this stock's story.) Is there even room for anymore cutting?
* Sales In the October quarter, North America accounted for 57.2% of revenue, so Creaf has some protection from Asia. BUT, the Asian crisis IS hurting Creaf sales because of the devaluations which reduces the value of foreign revenue translated back into domestic currency. October quarter sales dropped from 29% of the total to 23.7% of the total mainly because of devaluations. Anyone remember how much more the currencies have fallen against the dollar since the end of October? North American and European sales were particularly strong late in the third quarter, and this offset the damage from Asia. Can there be a reprise in Q4? Will North American and European sales come to the rescue again? What about DVD, Permedia2 and the new PC speaker system? And how about going forward? How much WILL a slowdown in PC sales to 15% to 17% from 18% to 20% hurt Creaf sales?
* Cash Sure there is lots of cash, but nobody cares about that. Investors buy stocks for expected future earnings. If you want to buy cash, go to the forex window at your bank. Let's not even talk about cash. Indeed, cash buildup is often taken as a bad sign--an indication that management does not know what to do with it.
Again, though, keep in mind that the main focus of this stock, aside from the popularity of Soundblaster, has been gross margin improvement. Anyone building the case for this stock should focus on how margins will continue to improve (cost cutting, increased sales of higher margin products, etc). Otherwise, say bye-bye to your Creaf shares.
Yippity Yappity!
Vinni the Knife |
