Smart Modular - diamond in the rough? Message Board

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Technology Stocks : Smart Modular - diamond in the rough?

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To: Serendipity who wrote (1898)	2/17/1999 5:18:00 PM
From: Joe Donato	Read Replies (2) of 2020

I hate to say it, but revenue growth is not that important when evaluating this company. Their business is to buy memory, put it on a module, then sell it. If the price of memory goes up, their revenues will go up - but so do their costs. So Smart's Revenue numbers free float with the memory market. The key to their business and their health is margin. The question is what are their gross margins - and what direction is it headed. Or in other words, how much money do they make for their "value add" to the price of memory. From the announcement, it looks to me that their margins went from 17% in the year ago period, to 11% in the just announced period. This is a 35% decline in margin - I would think a very unhealthy sign. There are only a few possible explanations: they are paying more then their competition for memory, and/or their manufacturing costs are higher and/or they are receiving less revenue for their product. None of these possibilities is particularly attractive when trying to find a silver lining.

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