Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

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

To: limtex who wrote (15746)	10/19/2000 12:14:46 AM
From: Ausdauer	Respond to of 60323

Another record quarter. Thanks, SanDisk. I was pleased by the earnings report. In particular there was good top line growth. Total revenues increased from $143.9 million in Q2 to $170.8 in Q3. Product revenues increased from $122.6 million to $151.8 million as well. As predicted, royalty revenues did plateau somewhat, but the $19.0 million is still above guidance which I recall was $17.0 to $17.5 million during the Q2 conference call. Although I had set high expectations for EPS (a 20% increase from Q2) it is clear that the very strong royalty recognition in Q2 did make growth appear less robust. However, an additional $2.4 million in royalties (equal to Q2) would have added another 2¢ to this quarter's EPS. I believe SanDisk is on target to exceed the $500 million mark in total revenues this year as projected. Similar to Q2, year-over-year EPS more than tripled. One important feature of the call was the shift to lower capacity, lower margin bundled 8MB CompactFlash cards. This depressed ASP's as SanDisk reports them out. This figure is always confusing to analysts and the same question about ASP's is asked during practically every c.c. To be honest, the falling ASP's always make business sound worse than it really is because it reflects changes in product mix rather that a reflecting the pricing environment directly. Another important fact was that the MP3 market has softened as the manufacturers await the outcome of the Napster case and fear reprisal from the recording industry if security measures are not incorporated in the latest designs. I suspect that pent up demand in MP3 players on the consumer side will continue. Hopefully SanDisk can make some inroads with regard to card capacity and pricing in the interim. Positives I heard during the call in addition to the record revenues included... *Fab 2 and 3 qualification at UMC with plans to increase production and improve yields. Ease in supply constraints of passives (capacitors) needed for card assembly. 512Mbit FlashVision products will be very cost competitive. 512Mbit FlashVision products will have improved read-write speeds. Hitachi's licensing of SanDisk's MLC technology will afford SanDisk a quota of their production. This was negotiated perhaps in place of a new royalty scheme. Eli described this arrangement at "highly valuable" and stated that no capital investments were needed to obtain the leading edge product that Hitachi is making. Product should be tested and incorporated in SanDisk's product line by the first half of 2001. Internet enabled cellphones using MMC/SDMC will be popular in 2001 and SanDisk has assurances that basic chipset functions will include necessary hardware and software to allow for implementation of MMC/SDMC. G3 infrastructure expansion should create further demand for industrial flash disks employed at base stations. There is a "temporary lull" in the demand for MMC/SDMC in the MP3 market, but this should improve pending resolution of the Napster case. Eli commented on the enormity of the MP3 market. Palm has a new (top secret) product line coming to market in early 2001 that will use SDMC. Palm is on the BOD of the SD Card Organization. Matsushita has any number of SDMC products about to be launched. Negatives included...* *No new CompactFlash licensees (aside from TDK) were announced. Lexar will continue to be a financial drain. The TDK and Hitachi licensing agreements seemed to contribute little incrementally since Q3. We did come in about $2.0 million above estimates regarding projected royalty revenues. The agreement with Hitachi may be weighted toward production considerations rather than a cash payout. Expenses for Q4 will increase as R&D spending for FlashVision, Tower/controller technology, and UMC production ramping increases. Marketing, retail channel expansion, and legal expenses will also increase in Q4. IN THE FUTURE, I hope to see the defense of the IP take shape. It will remain critical that licensing agreements for CompactFlash assembly be solidified. Eli hinted this may be the case in Q4, but there are no guarantees. Let's hope that SanDisk is able to sell the remainder of their inventory during the Q4 holiday period and the Q1 (2001) aftermarket sales period. It sounded like they had stockpiled cards in order to assure longer range availability of core items. Finally, the last caller was a real riot.** "Do SanDisk shareholders get freebies at the new kiosks?" "I'll even wear a SanDisk T-shirt if I get free prints." THANKS, SANDISK EMPLOYEES FOR ANOTHER RECORD QUARTER! Aus