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

To: Craig Freeman who wrote (10508)	4/20/2000 12:19:00 AM
From: Ausdauer	Read Replies (1) \| Respond to of 60323

SanDisk's Q1 Conference Call for 2000 Eli wished everyone a Happy Passover and a Happy Easter today during the conference call. Summary SanDisk reported its fifth consecutive quarter of record growth today with a 40% increase in earnings per diluted share quarter-over-quarter compared to the record holiday season in Q4 of 1999. Fully-diluted EPS tripled year-over-year. In addition, quarterly total revenues approached $110 million and broke the $100 million barrier for the first time in the history of the company. This was a fantastic quarter. The stage is set for growth with a strong base of demand, increasing sales, improved production efficiencies and anticipated ongoing improvement in gross margins. Growth should be sustainable for the next several years if execution remains on target. I listened to the c.c. twice and it was sad not to hear Cindy's voice. Frank Calderoni set the record for the slowest, most monotonous reciting of the "Safe Harbor" statements. SanDisk will be issuing No-Doze 60 minutes before any future conference calls. Also, the "Safe Harbor" statements include a personal injury disclaimer just in case you fell asleep while listening and struck your head on a piece of office furniture. Meat and Potatoes *Mr. Calderoni presented the financial data. Bennett Nottman of First Union Securities described the quarter as "stellar". Highlights included total revenues of $109.4 million vs. $82.8 million in Q4 1999. Product revenues were $97.2 million vs. $69.9 million for the same comp. Net income from operations was $15.3 million. As stated earlier, EPS increased an astounding 40% Q-over-Q. Eli anticipates that the average growth rate during the past year should be sustainable this year. This is a very aggressive pace to be sure. (WE NEED SOMEONE TO CALCULATE THE AVG. GROWTH RATE FOR THE LAST 4 QUARTERS TO GET A ROUGH IDEA ABOUT ANTICIPATED EPS FOR 2000.) Total MB shipped increased 50% vs. Q4 with the bulk of growth in lower capacity OEM cards. Average MB per unit shipped decreased from 27MB to 22MB. Because the lower capacity cards were greater proportionally to prior quarters the average selling price per unit fell 11% while the price per MB paid acutally increased 3% indicative of a stable pricing environment. Eli stated that the production efficiencies will give SNDK the option to initiate market elasticity by reducing price points for its products. SanDisk is under no pricing pressure* currently given that they are able to fulfill 60% of the orders received and industry-wide shortages will continue to buoy prices. *MMC shipments increased a whopping 126%. The 16MB cards are being transitioned to 32MB cards currently. Large scale production with reasonable yields have been accomplished by avoiding the stacked die problem encountered with 128Mbit chips. The 256/D2 technology allows for a single flash chip/controller package. Additional manufacture of final product has been outsourced to the Phillipines. Unfortunately, 64MB MMC will be tough to produce in bulk until 512Mbit manufacturing processes are in place. SDMC will be released this quarter as planned, however high volume production and sales are not anticipated currently. Regionally, sales to Japan increased 131%. Sales to Europe and the USA increased by 53% and 11%, respectively. Again, consumer markets made up the bulk of sales (70%) while industrial sales to the telecommunications industry in the form of PC cards (?flash drives?) accounted for the other 30%. A total of 26% of sales were at the retail level. OEM sales were hot, accounting for 41% of total product sales. The industrial applications remain a very desirable market with decent margins. Eli has mentioned this on practically every c.c. I have heard. Royalty revenues punched in at $12.1 million and should remain stable or increase slightly over the next several quarters. SanDisk recognized a one-time gain of $203.9 million dollars after taxes in recognition of the USIC/UMC merger. SanDisk will receive an additional 20% dividend on the stock they already received. At the close of the quarter we had $675.4 million of cash on the books. WOW! Product gross margins increased from 27% to 30% and should continue to improve as the transition to 256/D2 Mbit production is completed. This transition should also yield an additional production capacity of 25-30% next quarter. By Q3 additional production increases will be afforded by shrinking from 0.28 micron line widths to 0.24 micron line widths. All told, MB capacity should be 3 fold greater this year compared to 1999 as mentioned during prior conference calls. The Toshiba JV is progressing well. There are a lot of legal documents to sign. The deal should be complete in 60 days or so. SanDisk has already dedicated engineering staff, sent a team to Japan to help with integration, and made intial purchasing agreements for equipment for Dominion which should open in the second half of 2001 with its 512Mbit and 1gigabit manufacturing processes. The 8F fab at UMC will begin production in Q3 of 2000 and is being tested and approved as we speak. A second fab in Taiwan at an undisclosed location is progressing slower, but should be on-line by Q1 of 2001. NAND production at Toshiba's Yokkaichi plant will be thin for the time being and does not appear to be a major source of product currently. Lexar Media has infringed on a core flash card patent. This patent has proprietary facets which are 11 years old and have "stood the test of time". Eli made it clear that these "flash card" patents are wholly different from the patents defended against Samsung and Hitachi several years ago. These earlier court battles were over core patents in chip design, NOT flash card construction. This court decision indicates that the value of SanDisk's intellectual properties is now greatly "enhanced". He was quite emphatic about this point. Message 13421787 Also, Lexar cannot appeal the infringement verdict. Its only option is to seek remedy in the US Patent Court. There is a very high burden of proof on the plaintiff in such cases and Lexar must find some way of invalidating the '987 patent. This seems very unlikely. SanDisk wants to sit down and discuss licensing. Lexar has refused. "The ball is in Lexar's court." Microsoft is launching its Pocket PC OS with devices that will double as palmtops, MP3 players, and eBooks. These devices will be "hungry for flash" and should create the environment of multiple CF card sales per device. Eli referred to this as "increasing the attachment rate" for CF cards. *Sony has "bet the company" with their investment in and heavy marketing of Memory Stick. Their first Internet audio device has "stumbled" due to the restrictive content protection scheme and the use of an obscure CODEC called ANTRAC3. (This device also retails for a ridiculous $399.99 at Best Buy here in Minnesota.) MMC and SDMC are both compatible with the .WMA (Windows Media), .MP3 and .AAC CODECS which are most popular currently. Sony will be feeling pressure if subsequent product launches founder. (If the recent "MOU" between Sony and Lexar is an indicator of Sony's management decisions I think you can stick a fork in Memory Stick. It's done!) Also, despite that fact that Sony planned to use the chewing gum-like Memory Stick in cell phones (and scoffed at MMC/SDMC because of its diminuitive size) it has now recanted and plans to release a smaller version called "Duo". Eli indicated that Sony had stated earlier it would not contemplate anything smaller than Memory Stick for fear of rejection by consumers due to difficulties in handling. Now Sony appears to be backpedalling. DISCLAIMER: I believe the information recounted here to be accurate. Please use your own good judgement in interpreting the information presented and be prudent in your investment decisions. You may wish to consult with your investment advisor prior to taking any action based on anything posted by Ausdauer at any time on this thread. You should also consult with your psychiatrist for reading any posts by Ausdauer in the first place. Good Luck to All SNDK longs. Thanks Eli and Crew for another record quarter! Aus