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Technology Stocks : WDC/Sandisk Corporation
WDC 158.16+0.7%2:43 PM EST
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To: Jerome Wittamer who wrote (3063)5/22/1998 1:19:00 AM
From: Rex Dwyer  Read Replies (1) of 60323
 
2Q98 to have lower royalty income.

This is another worry. Since royalties drive the bottom line so hard, it doesn't bode well for the EPS in that Q. From 10Q: "gross margins and net income are likely to fluctuate more with changes in license and royalty revenues than with changes in product revenues."

Also from the 10Q: "the Company expects product revenues to increase in the second quarter of 1998 relative to the first quarter". Could they expect bigger revenues so they can back off on running royalty revenue through the income statement? I bet that Cindy B has a lot of leeway in recognizing the royalty and license fees. From the 10Q: "The Company currently expects that revenues from patent licenses and royalties will be in the range of $7.0 to $7.5 million in the second quarter of 1998 due to the timing of revenue recognition under the various agreements." This level is still a bit higher than they had in 4Q97 when product revenues were booming.

Since I bet Cindy uses royalties to compensate for lower product revenue, the forward looking royalty number gives a clue to the expected product revenue. My prediction, 2Q98 product revenues will be an equal percentage higher than 1Q98 as the royalties will be lower. So, I am guessing about $29.5M to $30M in product revenue, which brings total revenues to a total of ($30M+$7.5M)= $37.5M. The uptrend would be nice.

But again, as Jerome has said, this is a 3Q and 4Q story.

Rex
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