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Technology Stocks : SILICON STORAGE SSTI Flash Mem -- Ignore unavailable to you. Want to Upgrade?

To: hueyone who wrote (984)	10/1/2000 10:26:52 AM
From: hueyone	Respond to of 1881

The Kaufmann Brothers September 7 analysis of SST follows. This report can be viewed on PDF at the Kaufmann Brothers website. Pleae bear in mind that SST had an upward earnings pre announcement since this report that will necessitate KBRO raising its earnings estimates again. boards.fool.com We are reiterating our STRONG BUY rating and $60 price target. Recent conversations with management confirm our industry checks that flash memory devices are enjoying another strong quarter. SSTI is experiencing a particularly strong quarter as demand continues to significantly outpace supply. We have increased our 2000 revenue estimates to $498.5 million from $463.3 million and our 2000 EPS estimate to $1.03 from $0.91. • We are increasing our September quarter revenues by $15 million to $146.33 and our EPS to $0.30 from $0.25. • Strength appears to be coming from several end markets, specifically, communications equipment, computing and consumer electronics. • Visibility continues to be very strong, as the company is is sold-out through March and is now looking at orders into 2Q01 and beyond. • Based on conversations with management regarding capacity expansion and yield improvement, we are increasing our gross margin assumptions through the balance of 2000 and throughout 2001. STRENGTH IN THE QUARTER IS BROAD BASED Our channel checks and conversation with management indicated that low-density flash devices continue to be in tight supply while demand for flash is broad based. In the June quarter networking and wireless communications were the biggest YoY percentage gainers at 580% and 2668%, respectively (wireless off a small base). Additionally, the Intel (INTC $65 45/64) Firmware Hub Architecture (PC Bios) posted 500,000 units in its first shipping quarter. Our checks indicate that Internet computing and digital consumer products are similarly strong with communications devices continuing to step up. TO INFINITY AND BEYOND (WELL AT LEAST BEYOND THE 3RD AND 4TH QUARTERS OF 2000) We continue to acknowledge the supply of flash memory devices coming online over the next 12 to 24 months, however, much of this supply is of the NAND variety, which is typically for high-density mass storage applications. SSTI focuses on low-density NOR type flash focusing on code-storage applications. This delineation can be illustrated with SSTI's agreement with Intel to supply, as a licensee, compatible firmware hub architecture flash devices. We believe that Intel is willing to cede market share in this area because it currently has only a limited ability to supply 2 and 4 Mbit flash devices and the new capacity it is building is targeting high-density (16 Mbit and higher) flash devices. Additionally, the other significant flash capacity expansion announcements (from Fujitsu, Toshiba and Samsung) are by traditional NAND-type flash manufacturers and, as noted above, this type of flash is typically used in high-density mass-storage applications. The focus and excitement around the flash market has clearly been the high-density market. However, we would like topoint out that while every electronics device that requires high-density flash also requires low-density flash, every product that requires a piece of low-density flash forcode storage does not require a piece of high-density flash. VOLUME PURCHASE AGREEMENTS SHOULD IMPROVE LONGER-TERM VISIBILITY SSTI began to discuss VPAs with several customers in the June quarter and is expected to reach agreement with approximately 100 customers in the coming months. The agreements are being structured as volume agreements with mechanisms for price determination are spelled out. We believe these agreements will improve the level of visibility for quarterly demand as well as help management's ability to manage (which we believe they are already doing a very good job at) the rapid growth of the company. Currently, SSTI has essentially sold out its existing capacity through the March quarter and is beginning to book at June orders. We expect SSTI to add capacity over the long term above its currently projected levels through further licensing agreements and standard foundry relationships, which should allow further upside to our current 2001 expectations as these agreements move into production mode. EXISTING OPPORTUNITIES GETTING BIGGER IN 2001 Wireless currently represents 10% of total sales, as 2001 unfolds we believe SSTI is in a position to greatly enhance its exposure in wireless in the wireless communications space as Bluetooth products roll out and cellular phones move to iostackedli flash and SRAM configurations. We believe the Bluetooth applications will be particularly attractive to SSTI as many of these products will employ embedded flash, which will flow through the licensing portion of SSTI's revenue mix (above 90% gross margins). We believe embedded architectures will be chosen for Bluetooth applications due to their inherently smaller package size, lower power needs and lower cost. The stacked flash/SRAM configuration should have similar advantages for cell phone manufactures as the embedded flash has in Bluetooth applications. We believe that the Firmware Hub Architecture is a much bigger opportunity in 2001 for SSTI. In 2000, the Firmware Hub Architecture program is expected (by management) to contribute up to $40 million. With over 100 million PCs shipped annually and Intel's dominate market share, we believe this opportunity can be significantly larger in 2001 as SSTI continues to penetrate the customer base with its product offering for the Firmware Hub Architecture and the average size of the PC Bios continues to increase to 4Mbit from 2 Mbit. These and many more opportunities in communications equipment and consumer electronics are driving the revenue growth expectations for SSTI well into 2001. We have increased our 2000 revenue expectations by $35 million to $498.5 million for 2000 leaving our 2001 revenue estimate at $1.1 billion. Additionally, we have added $0.12 to our 2000 EPS estimate, which now stands at $1.03, and we have increased our 2001 EPS estimate to $2.19 from $1.96. These are sizable increases to our existing estimates that include a return to QoQ pricing declines in 2001 as we expect the pricing environment for most semiconductor products will return to more normal patterns of 15% to 20% YoY price degradation. The outlook for SSTI continues to be very positive, therefore we are reiterating our $60 price target and STRONG BUY rating. Best, Huey