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

To: orkrious who wrote (12588)	7/6/2000 9:47:11 AM
From: Greg h2o	Respond to of 60323

### ### FIRST UNION SECURITIES, INC. ### ### SNDK: ANNOUNCES $75 MILLION INVESTMENT IN TOWER SEMICONDUCTOR SanDisk Corporation (SNDK–OTC) Stock Rating: 1 Price Target: $200 PRICE: $53.38 July 6, 2000 52-WEEK RANGE: $169–$18 Bennett Notman / (804) 344-6430 DIVIDEND/YIELD: none/nil Joseph D. Hiller / (804) 782-6629 EPS ESTIMATES (FY 12/31) 1999A 2000E 2001E Q1 – March $0.07 $0.21A NE AVERAGE Q2 – June 0.10 0.22 NE VOLUME: 3.0MM Q3 - September 0.11 0.23 NE Q4 – December 0.15 0.24 NE INSIDERS ---- ---- ---- OWN: 8% Full-Year EPS $0.43 $0.90 $1.40 INSTITUTIONS OWN: 68% P/E RATIOS NM 59.3X 38.1X SHARES OUTSTANDING: 66.6 million 3-5 YEAR EPS MARKET CAPITALIZATION: $3.6 billion GROWTH RATE: 52% KEY POINTS -- SanDisk to strategically invest $75 million in Israeli semiconductor fabrication facility -- SanDisk will garner dedicated capacity, production anticipated in 2002 -- Agreement represents extension of Toshiba alliance -- Reiterate Strong Buy (1) recommendation -- Our 12-18 month target price is based on DISCUSSION SanDisk intends to strategically invest $75 million in Israeli semiconductor fabrication facility. Yesterday morning, SanDisk announced that it entered into a definitive agreement to invest $75 million in Tower Semiconductor, an Israeli wafer foundry, in exchange for limited equity ownership, representation on Tower’s board and dedicated flash controller supply from the soon-to-be-built “Fab 2” in Migdal Ha’emek, Israel. Subsequent to Tower’s completion of additional financing for the new wafer fab (up to $350 million in additional equity expected to be contributed via similar transactions), SanDisk is expected to hold approximately a 10% stake in Tower. Additional strategic partners that have yet to be announced will likely aggregately own approximately 30% of the company. We believe that SanDisk’s strategic investment in Tower Semiconductor is entirely consistent with its goal of diversifying its flash controller supply (away from Taiwan-based foundries) while also enlarging its supply of dedicated capacity with which to serve numerous expansive, rapidly-growing consumer electronics markets and thereby accelerate its revenue growth. SanDisk will garner dedicated capacity, production anticipated in 2002. Sandisk intends to execute its strategic $75 million investment in several stages over an 18 month period assuming adequate completion of various conditional factors, including the participation of the Israeli government (the total cost of the Fab 2 project is estimated at $1.5 billion through end-2003), the provision of bank loans to Tower and the signing of additional equity partners for the project. We believe that SanDisk’s current cash position (holdings presently estimated at between $450-500 million) is entirely sufficient to fund this initiative without the selective disposal of some of the company’s marketable securities, including its UMC shares (which recently came off lock-up). Tower’s new fab, known as Fab 2, is expected to employ roughly 1,000 people and produce up to 33,000 200- mm wafers per month at peak volume. Tower plans to commence construction of the new fab later this year with first production anticipated in H1 2002. SanDisk’s equity ownership entitles it to a guaranteed volume of the available wafer capacity at competitive pricing levels, and SanDisk also holds options to acquire an additional 10% of Tower equity under similar terms. Agreement represents extension of Toshiba alliance. In our opinion, SanDisk’s recently announced partnership with Tower Semiconductor represents a logical extension of its ongoing alliance with Toshiba for the joint development and production of advanced flash memory products and SD Card controllers. Toshiba recently agreed to license some advanced technology (specifically sub-micron CMOS Logic technologies) to Tower which will be incorporated into the design and future manufacturing by Tower of the controller chips used by SanDisk’s flash memory cards. The addition of Toshiba’s technology significantly enhances the technical depth of Tower’s manufacturing operations, while the close proximity of SanDisk’s Israel Design Center (responsible for developing MMC and SD Card controllers) to Tower’s facility should reduce both the developmental cost of new controllers as well as their time to market. We believe that the Tower joint venture will further strengthen the relationship between SanDisk and Toshiba, and expect that the support of both companies will prove beneficial to the viability and success of the Israeli project. CONCLUSION Reiterate Strong Buy (1) recommendation. We believe that SanDisk’s strategic Tower investment underscores the ongoing robust growth enjoyed by the company’s target markets. Rapidly scaling demand for SanDisk’s MMC, CF and SD products accompanying emerging consumer handheld devices (e.g. PALM appliances, handheld PCs, Internet audio players, digital cameras, etc.) has created a dearth of available capacity with which to satiate ramping demand. We believe that future production by Tower’s advanced Fab 2 will help to provide the potential for meaningful revenue acceleration for SanDisk, and believe that this deal represents a logical extension of previous alliances. We reiterate our Strong Buy (1) recommendation on SNDK stock for risk-tolerant investors with a 12-18 month price target of $200.

To: orkrious who wrote (12588)	7/6/2000 9:48:00 AM
From: JH	Respond to of 60323

MSDW reiterates their Outperform rating, saying "Demand for SanDisk's data storage flash products remains robust and bookings have extended well into the second half. We expect strong earnings performance in the next several quarters" Their price target is still $200, and their FY 2001 EPS forecast is $1.20.

To: orkrious who wrote (12588)	7/6/2000 10:14:44 AM
From: Ausdauer	Read Replies (3) \| Respond to of 60323

Jay, I told you Mark Edelstone was listening! I think it had to do with the "million controllers a month" statement that Eli made. Also, in reviewing my Shareholders' Meeting notes I surprised myself. Will SDMC and MMC add $200 million to FY 2000 revenues? I think MMC and SDMC are underappreciated as people continue to make the mistake of lumping SNDK together with SSTI, AMD and Intel (who even sold their flash card business to Centennial). Aus