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

To: limtex who wrote (16251)	10/29/2000 7:30:25 PM
From: Zeev Hed	Read Replies (2) \| Respond to of 60323

Limtex, unfortunately (or not) companies report only once every three months. In typical situations (businss as usual) receivable fall on a bell curve. Some customers prepay for orders (i.e. they do not have credit with the company, or they buy directly from SNDK's web site, if SNDK sells in such a fashion to end users). Other customers pay within 10 days of shipment and take a 1% to 2% credit for paying ahead of time. Most customers pay net 30 days from delivery, and then za smaller number of customers have longer term payment. Typically, when business is not changing rapidly from month to month, the company DSO is relatively constant and fluctuates between 45 and 55 DSO. For any company, this number stays relatively constant and is quite typical to its business. Thus, when QOQ growth slows down, DSO will tend to come down assymptotically to its median for that industry segment. When growth is "furious", it could for the time that that rate of growth is maintained go up to the top of the range (like the 62 DSPO we saw for SSTI with QOQ growth rate of 59%)for that industry, but typically, sales always grow faster than receivable if the distribution of terms stayed constant. When you do not know the actual month to month change in sales and receivable, you simply use a "short cut", it may be right or wrong, but it gives you a handle to estimate if "problems are brewing" or not, and that is the model I have used, assuming that the growth in receivable is due to aging accounts. Sure you can build a "model" that states that all the $83.7 MM in accts receivable from the last quarter were paid, and that from the current $152 MM, only $18 MM were paid so far and $133 MM re still outstanding. That will not change the perceived problem, however, since in lieu of having just $20 MM "very aged", you now have all your sales on very long term (more than 75 days), which once more will be an indication that the company has to give term concessions to "push product" through the channels. That is why sudden increase of DSO is often associated with the term "stuffing the channel". Take your pick, either we have a limited problem of $20 MM accounts that are more than 90 days due, ot we have all our sales being paid only after 75 days. There is really no way I can determine which is the case, but both cases typically are "warning flags". I believe that the $20 MM very aged assumption is a better assessment, since the last quarter DSO was quite rational at 61 days. Zeev