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Technology Stocks : WDC/Sandisk Corporation -- Ignore unavailable to you. Want to Upgrade?

To: Bruno Cipolla who wrote (6426)	7/18/1999 12:12:00 PM
From: Ausdauer	Read Replies (2) \| Respond to of 60323

Bruno and Thread, I wanted to add a bit of conjecture to the post I made last night and talk about a few scenarios which may influence SNDK in the near term. This information is speculative. As a long term investor I am less interested in short term price fluctuations. I am making these statements purely to stimulate discussion. Growth Rate The Q-over-Q growth rate was impressive. If you carry a 19% top line growth through the remainder of the year (and intentionally exclude any seasonal uptick) you see that gross revenues of ~$235 million are possible this year with an EPS for the calendar year in the range of $0.80 to $0.85. If this growth rate continues through 2000 I predict revenues in the range of $475 million and earnings of $1.60 per share giving us a current forward PE of about 40. I believe these estimates are realistic. The Iomega Effect The importance of consumer awareness of budding technology cannot be underestimated. Soon there will be millions of people holding CompactFlash cards in their hand. There are many people who have done some home schooling with the help of Peter Lynch who will be attracted to SNDK as an investment. Some will be driven by their pure fascination with the technology. I CF card is magical. I remember buying my first PCMCIA card. As we all know, PCMCIA stands for... Pretty Cool, Muttered the Consumer In Awe. It was a 14.4 kbs fax/voice modem card that I purchased for a laptop at work. I thought the technology was fascinating. Now there is CF and a multitude of CF-like accessories. And as people realize how fun CF is I predict there will be a fanaticism not unlike the following on the SI SanDisk Thread. Consumers will evolve into investors and prop up the stock price. I have coined this "The Iomega Effect", but I feel the SanDisk cult will be of greater magnitude given the plethora of really fun consumer devices that are being launched. Big Blue I think that the perception of the company during the second half of 1998 was hindered by IBM's microdrive campaign. This has been largely overdone, especially because the product has not been released on the consumer. I mentioned earlier that the microdrive has not passed the "Samsonite Qualification" whereby the consumer puts it through a torture test to see how it stands up and a determination is made as to how many units are going to be headed back to the company for repair or replacement. The media has done much to further the hype surrounding the microdrive. I am planning to have the feature article from the NY Times piece (the one that happened to leave CF out of the review on removable memory) framed for my office. Or perhaps I will just frame it and send it to Eli sometime in the next few years. I will make sure to use a cork underlay so that it may double as a dart board. The Double Dip The current royalty revenues appear to be related to production of raw, unfinished chipsets. Toshiba, Samsung and Hitachi continue to be strong competitors because of their resources available and because they appear to supply SanDisk competitors such as Lexar, Viking, Microtech, Simple Technology, Eiger, Delkin, PNY and the like. I have no problem with competition in the CF market, because it is an open standard. However, I believe that the card assemblers should be paying royalties to SanDisk. I call this the "double dip" because SNDK stands to profit from raw chipset production (which will ramp up significantly in the next few years) and from card assembly patents paid by the competing CF producers. The Lexar suit is the test case. We all know that this suit appears to be concluding favorably. SanDisk has hinted that other manufacturers will likely be pursued at a later date. It is for this reason that SSTI, another flash memory producer with a strong IP position, decided to ante up from the start rather than risk future litigation. R&D Eli Harari is a scientist. He is pumping a significant portion of revenues back into R&D and leaving the manufacturing to business partners. I trust that Eli and his team will be positioned to bring the newest technologies to market. As I mentioned many times earlier, even as CF begins to take off the biggest threat remains in-house. The diminuitive sibling of CompactFlash...the MultiMediaCard. It is not Clik! or the Microdrive or The Memory Stick. Why haven't people figured this out yet? Fantasy Headlines "Lexar litigation settled favorably. SanDisk launches series of like suits against infringing card assemblers." "Unable to cope with demand, Sony contracts SanDisk for production and assembly of high capacity MemoryStick for MP3 Digital Walkman." "Digital Cameras, Color PDA's and MP3 players top the holiday wish list." "SanDisk leads the pack with runaway sales of CompactFlash, MMC and SmartMedia. MemoryStick negotiations with Sony finalized." "The miraculous microdrive proves too fragile for portable device usage. IBM concedes removable memory race to flash memory producers." "3Com adds CompactFlash slot, color LCD screen and cold fusion power source to Palm XXVIII. Industry experts feel bold maneuver may be a bit late." "Dell Computer announced today that it will add a CompactFlash bay as standard option for all PC's beginning January 1, 2000. Dell will offer a free upgrade for all PC's purchased before this date." Respectfully, Ausdauer