This is a repeat of Huey's post in a format for easier reading. Huey, make sure your fixed font mode is disabled unless the entire post is numbers you want aligned.
--Mike Buckley
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Mike, I agree with you that SSTI and SNDK are currently targeting different market segments and there is not a lot of overlap. However, ultimately SSTI hopes to leverage its flash code storage business into high density data storage solutions. SNDK is also interested in increasing its position in the code storage market. As you know, I recently took a small position in SSTI while I am continuing to learn about the company. Here is a little background summary regarding the company I put together from various sources including brokerage reports, company press releases and SEC filings. I gleaned quite a bit of information from two recent reports by CSFB and one recent report from SSB. One caveat, however, SSB and CSFB were the lead underwriters in a recent SSTI secondary offering so it was not surprising to find their reports are incredibly bullish. Since this post is already too long, I will post again later with a discussion referencing the manual. (This will also give me more time to think about SSTI's relative position within the industry.)
1. Flash Memory Industry is in a Tornado. (duh)
2. SSTI Business Summary. From Market Guide: Headquartered in Sunnyvale, California, SST designs, manufactures and markets a diversified range of nonvolatile memory solutions, based on proprietary, patented SuperFlash technology, for high volume applications in the digital consumer, networking, wireless communications and Internet computing markets. SST's product families include high-functionality flash memory components, CompactFlash card mass storage products and 8-bit microcontrollers with on-chip flash memory. SST also offers its SuperFlash technology for embedded applications through its world-class manufacturing partners and technology licensees Analog Devices, IBM, Motorola, National Semiconductor, Samsung Electronics Co. Ltd., SANYO Electric Co., Ltd., Seiko Epson Corp., TSMC-Acer Semiconductor Manufacturing Co. (TASMC) and Taiwan Semiconductor Manufacturing Co. Ltd. (TSMC).
From company press release: SST's SuperFlash technology is a NOR type, split-gate cell architecture which uses a reliable thick-oxide process with fewer manufacturing steps resulting in a low-cost, nonvolatile memory solution with excellent data retention and higher reliability. The split-gate NOR SuperFlash architecture facilitates a simple and flexible design suitable for high performance, high reliability, small or medium sector size, in- or off-system programming and a variety of densities, all in a single CMOS-compatible
technology.
3. Flash Memory Pure Play. I believe SST is the only flash memory pure play focusing on code storage. SNDK and M Systems, two other flash pure plays, focus entirely on the data storage market.
4. Management.---from company web site:
Bing Yeh, President and CEO
BING YEH, one of our co-founders, has served as our President and Chief Executive Officer and been a member of our board of directors since our inception in 1989. Prior to that, Mr. Yeh served as a senior research and development manager of Xicor, Inc., a nonvolatile memory semiconductor company. From 1981 to 1984, Mr. Yeh held program manager and other positions at Honeywell Inc. From 1979 to 1981, Mr. Yeh was a senior development engineer of EEPROM technology of Intel Corporation. He was a Ph.D. candidate in Applied Physics and earned an Engineer degree at Stanford University. Mr. Yeh holds an M.S. and a B.S. in Physics from National Taiwan University.
Yaw Wen Hu Senior VP, Operations & Process Development
YAW WEN HU, Ph.D., joined us in 1993 as Vice President, Technology Development. In 1997, he was given the additional responsibility of wafer manufacturing and, in August 1999, he became Vice President, Operations and Process Development. In January 2000, he was promoted to Senior Vice President, Operations and Process Development. Dr. Hu has been a member of our board of directors since September 1995. From 1990 to 1993, Dr. Hu served as deputy general manager of technology development of Vitelic Taiwan Corporation. From 1988 to 1990, he served as FAB engineering manager of Integrated Device Technology, Inc. From 1985 to 1988, he was the director of technology development at Vitelic Corporation. From 1978 to 1985 he worked as a senior development engineer in Intel Corporation's Technology Development group. Mr. Hu holds a B.S. in Physics from National Taiwan University and an M.S. in Computer Engineering and a Ph.D. in Applied Physics from Stanford University.
5. Company Objective. From 3/22/00 SEC filing: Our objective is to be the leading worldwide supplier of flash memory devices and intellectual property for program code storage applications. In addition, we intend to leverage our SuperFlash technology to penetrate the high density mass storage markets. We intend to achieve our objectives by:
- maintaining a leading position in the program code storage market;
- continuing to enhance our leading flash memory technology;
- introducing new products based on our SuperFlash technology;
- maintaining a leading position in licensing embedded flash technology; and
- penetrating the high density mass storage market.
6. EPS Growth Rate. Consensus analysts expectations for STTI to maintain a better than 100% YOY EPS growth rate this calendar year as well as coming calendar year 2001.
biz.yahoo.com
At a recent price of $108, SST is selling at 31 times next year's projected earnings of $3.51 per share.
7. Relationship with Intel. In March, Intel licensed SSTI to offer flash memory devices that are compatible with Intel's 800 Series Hub Architecture chipsets. The announcement that Intel selected SST as the first licensee of it FWH architecture indicates that Intel believes that SST has the quality, reliability, and foundry relationship necessary to support this enormous market opportunity. While we believe Intel will license others to participate in this market, it is our belief that SST will have a significant technological lead and cost advantage over its future competitors..---CSFB 3/30/00 report.
More on the Intel relationship and market potential thereof:
siliconinvestor.com In April, Intel reworked it license with SST to turn over all the flash memory production for the 800 Series Hub architecture chipsets to SST. Intel quit making flash memory
production themselves for the 800 series. As far as I know, Intel still has not licensed any other Flash maker for this business. techweb.com
6/12/00 company press release: The production shipment of SuperFlash Firmware Hub products has commenced this month. The company expects to ship over 400,000 units of SuperFlash Firmware Hub products in June.
8. Improving margins. Led by rising prices and falling unit costs, gross margins were the key driver of the upside (last quarter's blow out earnings), rising to 41.5%, 11.2% higher than the previous quarter.---SSB 5/19/00 report. We believe license revenue from embedded technology will continue to grow as percentage of revenue.....this could propel gross margin above the company's stated financial objective of 42%.---6/1/00
CSFB report. The 3/30/00 CFSB report also notes that the patented Superflash technology offers SST the flexibility to balance available wafer capacity and cost. I wish the author had elaborated on that statement because I am not clear what he means.
9. Positioned to dominate the Code Storage Market ---according to 3/30/00 CSFB report. And applications for code storage devices far outnumber applications for data storage devices. Low density flash is being designed into emerging applications in the digital consumer, communications, and computing segments.
10. Patents. We own 22 patents in the United States relating to our products and processes, and have filed for several more. In addition, we hold two patents in Europe, one patent in Germany and additional foreign patent applications have been filed in Europe, Japan, Taiwan and Canada. Atmel sued STTI over patent infringement but so far STTI has been whipping ATMEL in court.
11. Competition. Our memory products compete principally against products offered by Intel, Advanced Micro Devices, Atmel, STMicroelectronics, Sanyo, Winbond
Electronics and Macronix. If we are successful in developing our high density products, these products will compete principally with products offered by Intel, Advanced Micro
Devices, Fujitsu, Sharp, Samsung Semiconductor, SanDisk and Toshiba, as well as any new entrants to the market.--- 3/22/00 SEC filing.
12. Proprietary Manufacturing Technology. Although SSTI is fabless, it uses a model it calls an Integrated Device Manufacturer (IDM). SST installs its proprietary process at its foundry partners' fabs which is then only used to manufacture devices for SST and its authorized licensees. Presumably SSTI maintains control of its IPR this way.
13. Customers. Our customers include 3Com, Acer, Apple, Compaq, Diamond Multimedia, FIC, Hyundai, Intel, IBM, LG, Lucent, Motorola, Panasonic, Samsung, Sanyo, Siemens and Sony. In addition, we have recently added Cisco and Nortel as new customers.---3/21/00 SEC filing. SSTI is also working closely with QCOM on flash memory solutions for next generation cellular phones---3/30 CSFB report.
14. Product Mix. As I mentioned above, low density flash is being designed into emerging applications in the digital consumer, communications, and computing segments. SSB notes that the company is no longer a supplier just to the PC BIOS market. Instead, some two thirds of its sales now come from networking, digital consumer, and wireless markets.
% of Q1 2000 Revenue % of Q4(99)Revenue
Networking 19.8 16.0
Digital Consumer 38.9 32.0
Wireless 7.0 9.0
Internet Computing 34.4 43.0
In Q4 only 4% of SST's revenue were from data storage. I am not sure what that figure was in recent Q1.
15. New Products. Riding on the new product introduction momentum of last year, we continue to execute on our product diversification and proliferation strategy. We expect to introduce more than thirty new products this year. During the first quarter, we announced eleven new products in the product families of MPF (Multi-Purpose Flash), ComboMemory, FlashFlex51 microcontroller and the Firmware Hub.---4/25/00 company press release. The company's Combo Memory product, which is a marriage of SRAM and Flash, already has six to seven wins in cellular handsets.---5/19 SSB report.
16. Royalties. SST receives a royalty stream (and in many cases an upfront payment) on products shipped utilizing its technology.---3/30/00 CSFB report. Companies like QCOM and BRCM are working with SST and its foundry partners to develop integrated products. But at this time, I am not clear whether QCOM is actually shipping products using SST technology. The 3/30/00 CSFB report notes royalties are growing at a rapid rate and may likely exceed our estimate of 3% of revenues by late 2001. I would have expected revenues from royalties to be higher myself. At a recent European tech conference, Infineon made extremely bullish comments about its embedded flash prospects. SST will be a beneficiary of Infineon's plans, as royalty revenues will flow from Infineon, (via its partner IBM) to SST.----6/1/00 CSFB report.
17. Capacity Concerns. Like most Flash memory companies, SST is capacity constrained. However, the company is transitioning several products from .33 to .25 linewidths, which increases the number of die per wager by 50 to 60%. The shrink will occur over the next two quarters.---5/19/00 SSB report.
The company also recently made an agreement with NSM to use spare capacity in NSM?s South Portland, Maine, Fab:
Message 13401101
Some comments accompanying the announcement were: The companies described the agreement as supporting SST's strategy to become the leading embedded flash memory supplier as well as enhancing National Semiconductor's focus on highly integrated solutions for analog applications and Information Appliances. With this agreement, SST becomes the exclusive flash memory partner to National for its 0.25-micron embedded flash products. This agreement with SST provides our customers with the most advanced flash technology for embedded applications,' said Brian L. Halla, president and CEO of National Semiconductor. With the current capacity crunch in the flash market, this agreement assures our embedded flash product customers that our supply source is secured. We also gain a volume fab customer in SST, who can take advantage of our leading-edge wafer manufacturing facility.
Finally, the company enjoys excellent relationships with top-tier Taiwanese foundries. I suspect the fact top management is originally from Taiwan greatly facilitates good relationships with the Taiwanese fabs.
All for now, Huey |
