Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Technology Stocks : Rambus (RMBS) - Eagle or Penguin -- Ignore unavailable to you. Want to Upgrade?

To: unclewest who wrote (27006)	8/13/1999 7:24:00 AM
From: unclewest	Read Replies (1) \| Respond to of 93625

Stock of the Day Aug 13, 1999 Smart Modular Technologies: Riding the Memory Recovery by Eric Singer 8/13/99 It looks like prices for memory chips have bottomed. And one company that seems in good positioned to benefit from a turnaround is Smart Modular Technologies (NASDAQ:SMOD - news) . Smart is a leading manufacturer of specialty memory modules for such well-known makers of computers, networking and telecommunications products as Compaq Computer (NYSE:CPQ - news) , Cisco Systems (NASDAQ:CSCO - news) , Hewlett-Packard (NYSE:HWP - news) , Data General (NYSE:DGN - news) , IBM (NYSE:IBM - news) , Motorola (NYSE:MOT - news) , NCR (NYSE:NCR - news) and Solectron (NYSE:SLR - news) . The memory market experienced severe price erosion in 1998 resulting in a 17% decline in the memory module market. Despite this, Smart was able to grow its revenue by 3% and achieve strong profitability, earning $1.10 in its 1998 fiscal year ended October and $1.01 for the calendar year 1998. The decline in prices for memory was attributable to oversupply conditions resulting from Asian memory manufacturers such as Samsung operating at full capacity. In an environment of oversupply and price weakness inventory levels increase. However, channel inventories appear to be declining and pricing is firming. The reduction in capital spending budgets at leading memory manufacturers coupled with the increase in memory performance that will be required to run Windows 2000 and other new software applications could result in a shift to a period of under capacity for the memory market. According to market research firm Dataquest, the revenue for the memory market in general should increase by 49% in 1999, 59% in 2000 and 69% in 2001. The prospects for stabilization of prices of memory bode well for Smart as original equipment manufacturers continue to migrate toward the just in time manufacturing model. Smart has attracted a marquee customer base as a result of the depth of its product offering as well as its fast turnaround time. The pending introduction of the Rambus DRAM in the Fall with volume production in early 2000 represents a unique opportunity for Smart Modular. The Rambus architecture requires greater design expertise that should accelerate the trend toward outsourcing on the part of original equipment manufacturers. In fact, Smart plans on spending between $15 and $20 million on capital equipment over the next few months to enhance its competitiveness in the Rambus market. Opportunities for new business exist from the Korean chip manufacturers as well as the European chip companies. Smart Modular has a solid balance sheet to fund its future growth and repurchase stock. Smart ended its most recent quarter with over $160 million in cash and declining accounts receivable, which is a good sign. Smart Modular has authorization to repurchase up to four million shares. To date, over one million have been repurchased. Customer concentration is a risk at Smart Modular. Compaq accounts for roughly 60% of total revenue and 30-35% of operating income. Approximately 60% of Smart's business with Compaq comes from servers with the remaining 40% derived from consumer products. While Compaq's recent troubles have been well documented, the relationship and opportunities between the two companies remain solid. Going forward, the percentage of revenue derived from Compaq should decrease as Smart continues to diversify its revenue base. Recent customer wins include IBM and Siemens. Smart should net $0.70 in the second half of its 1999 fiscal year on $500 million in revenue. This would bring fiscal 1999 EPS to $1.24. For fiscal 2000, Smart has earnings power of $1.56. Its shares, at a recent $19.19, are trading at less than 16 times estimates for the fiscal year that ends in less than three months and about 12 times potential fiscal 2000 earnings. Bottom Line: Smart is uniquely positioned to capitalize on the growth in the memory market. It provides fast turnaround times for customers and an extensive product offering. Macro trends such as just in time manufacturing bode well for Smart as does the forecasted rebound in pricing for memory in general. --------------------------------------------------------------------------------