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

To: Ausdauer who wrote (7600)	10/13/1999 8:59:00 PM
From: Art Bechhoefer	Read Replies (4) \| Respond to of 60323

That Reuters report was like the elephant's ear. You really can't tell what the rest of it looks like from the headlines and supporting data. The most significant information to me was the huge increase in sales in certain geographic areas. The laggard was clearly Europe. The champion was Asia (where SNDK supplies much of its EOM product). A second aspect of the cc that interested me was the integrity of the company. Faced with supply shortages and increasing prices from suppliers, SNDK decided to stick to its original agreements with buyers, regardless of the added expense. This created a situation that Harari called "not good for our customers." But rather than boost prices, SNDK stuck by its older agreements. If you factor this into the issue of margins, you can see that, if prices rise, as they will in the next quarter, margins will get better on that basis alone, not to mention the engineering fixes to improve yield on 128 mb chips. The info on the summary judgment motion, in response to a question I asked, was very useful. The court granted Lexar a 90-day extension to prepare its answer, scheduling a hearing for January. Once papers have been filed and oral arguments presented, a court typically takes 30 to 60 days for its decision. Thus, we can expect a decision on the SNDK motion to dismiss sometime in February or March, if Lexar doesn't decide to settle before then. Harari agreed that the more recent Lexar court action concerning its accusation of false advertising was of no consequence. Besides the numbers being impressive and solid, there were other events, such as the Toshiba joint venture, the agreement with Toshiba and Mitsubishi, and comments on the Sony Memory Stick that were encouraging. Commenting on the size of Sony's product, Harari noted that it would be too big to use in a cell phone or a wrist watch sized music player. The mechanical write protection in the SNDK product he thought was preferable to the electronic write protection in the Sony. These and other features, he thought, would bring down the cost of the SNDK product and make it much more competitive. He noted that the SD (secure digital) standard developed by SNDK and its partners resembles the DVD standard, which the rest of the industry is adopting. As for the digital camera market, Harari thought it would really take off when 2 mpixel cameras started selling for around $300 - $500, instead of today's prices of $500 - $700. He thought that might take a year or so, as it would for lower resolution (800K - 1 mpixel) cameras to reach $199. Summing up, he noted that pricing is well in hand, consumer awareness is well in hand, and in the next five years, digital cameras "will obsolete traditional 35 mm except for throwaway cameras." To that, I would add that there already is one vacant Kodak factory in Rochester, and probably more to come. Does SNDK need a spare factory? The better question might be, does Kodak need CF? Of course, unless they want to change their trademark to picture a dinosaur. Lastly, those who are interested ought to project out the total revenues in order to estimate the ratio of price per share to sales per share. Even on a diluted basis (30 million shares, for a round number), you get sales around $8 per share, so the price/sales ratio is currently around 5. Now compare that with other tech stocks, big or small, and you will see the ridiculous price where SNDK shares are trading. The price/sales ratio is a much better indicator of value for a company with new products and high growth, but with earnings depressed mainly by the amount of research and development costs that always accompany new products in the tech sector. The funniest comments came from the guy at Merrill who was desperately trying to cover his rear for the misleading report he had issued after the first earthquake. Harari helped him out by admitting that the situation was better than expected at the time. Just as that analyst misjudged the real situation, so did the Reuters headline and accompanying snipits of information misjudge the key factors in SNDK future growth prospects - which is what the average stockholder is really interested in. Art