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

To: thecalculator who wrote (14472)	9/3/2000 11:53:33 PM
From: Zeev Hed	Read Replies (1) \| Respond to of 60323

So the point you are making is that TSEM should be accorded a PSR like INTC, well INTC has been around a little longer, happen to be a "gorilla", command its market place and has gone through many cycles where it's own PSR was around 1. The point I was trying to make, and without "dissing your investment", is that TMES has a lot of growing pains ahead of it, you do not go from $100 (actually last year $70 MM, but the most recent "sell rate is close to $100 MM) sales to $1 B sales without a lot of financing. TSEM has about $50 MM in cash and investments on hand. Building Fab 2 will cost a good 1 B, of which they are counting on companies like SNDK and ALSC to contribute about $350 MM, they are negotiating with IDF a grant of $300 MM (and will probably get it), they'll still have to come up with another $350 MM, just for capex. On top of this start up costs would probably run into the $200 MM range and to get to $1 B in sales, their working capital will have to increase by about $300 MM, thus they still need to come up with $850 MM, not an easy task in current equity market. If they go the route of equity financing, then, on top of the 60% to 70% dilution due investors like Toshiba, SNDK, ALSC and Israel Corp. you could add anywhere from 20 MM to 40 MM additional shares (raising the total share count to between 55 to 75 MM shares), leaving current shareholders holding between 1/6 to 1/4 of the company, if you take the medium of 65 MM shares, at $10/share it gives you a cap of $650 MM, for sales which next year surely will not exceed $300 MM, so you see, $10 share is more than a PSR of 2. In view of the risks associated, I think that this could be generous, it surely is not a "fait accomplis" that TSEM will succeed in their gambit to be a $1 B plus company by 2004/05 time frame. The current price, IMHO, fairly reflects the potential "explosive growth" you are forecasting. Does it means that TSEM price over the next few months will not reach the low to mid $40', no, I think it will, but I also think that after that visit to these acrophobic highs, history will repeat with this sector, and a decline to 1/4 of its peak value, is not impossible. Even mighty INTC is regularly cut down to one half of its most recent peak value. SNDK got cut down to 25% of its peak value in barely one quarter. The visibility of SNDK's future success is, at this point, much greater than that of TSEM. As for dwelling on the past, those that do not learn it are doomed to repeat it. While I laud their plans, these plans are definitely high risk plans. They are not breaking into the black even at the sales rate of $100 MM annually, I have no data to try and estimate at what point they will be positive cash flow on existing operations (if you have a break even figure that would be nice to know), but clearly, you should not expect profits over the next 18 months to make any dent in that additional $850 MM in financing. The IDF will probably help with some financing of working capital, but that is not a grant, and thus the balance sheet will be quite weak until their Fab 2 is fully operational and their yields are up. How can you forecasts explosive growth with such assurance when there are so many uncertainties. What TSEM lacks most id funding to achieve their plans, I just hope they do not have to revert to forms of toxic financing. Last, apart of your issue with my not addressing your comparison with "contemporaries", you really did not address any of the issues I was "generous with, like future share count, and expected annual sales rate (TTM) by mid 2002. Zeev