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

To: gerard mangiardi who wrote (13144)	7/20/2000 12:34:05 PM
From: orkrious	Read Replies (1) \| Respond to of 60323

Q1 was the first time they ever had a profit from operations alone without royalties. They have been funding R&D, and their markets are just going to take off. As their markets explode and capacity comes on line, this number will grow. But the real kicker comes from royalties, which are going to increase exponentially. Obviously, this falls to the bottom line with no increase in expenses. Jay

To: gerard mangiardi who wrote (13144)	7/20/2000 8:12:07 PM
From: DukeCrow	Respond to of 60323

Are their margins really only about 1.5% on product sales? You forgot to tax the royalties 35%. That makes about $13.9 million of the $24.3 million of income attributable to royalties -- about 57%, leaving 43% of income attributable to product sales and interest income. Taking out the interest income, I calculate about 5.4% net margins. Of course, this would mean all operating costs are being assigned to product sales and none to royalties (which are tied directly to R&D and legal expenses). This isn't truly possible, so the actual net margins of the product business should be a little higher. Doing the same calculations I get about 4.8% net margins on products in Q1. That seems about right given product gross margins increased to 31% from 30% sequentially. With product gross margins targeted for 35% sometime down the road, I think SanDisk can reasonably get to about 8% product net margins. Ali