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

To: Ausdauer who wrote (16556)	11/12/2000 12:09:34 PM
From: orkrious	Respond to of 60323

The Merrill Lynch data is confusing. The note's author's conclusion was not arrived at by someone who knows how the statistic is computed. What was said was not the product of someone with an MBA. Jay

To: Ausdauer who wrote (16556)	11/12/2000 2:41:51 PM
From: orkrious	Read Replies (2) \| Respond to of 60323

I just came across the Merrill comments. They all sound good except the DSO stuff, which I've said don't make sense. 3Q00 Highlights SanDisk reported 3Q00 EPS of $0.35, easily beating our $0.28 estimate by $0.07, which was a penny below Consensus. Revenues of $170.8 million were up 19% QoQ, above our $166.0 million estimate. Gross margins were 40.4%, down 90 basis points QoQ, but well above our 39.1% estimate, due to higher product gross margins and a $1 million dollar upside to our license and royalties estimates. We believe product gross margins will continue to move higher as the product mix shifts to higher-margin, higher-density flash chips and as further manufacturing efficiencies are recognized. We look for gross margins to trend to 37.4% by the end of F01 as the product mix shifts to an increasing percentage of revenues from flash products and as the license and royalties revenues remain flat going forward. Geographic breakout Geographic breakout was as follows: North America, 44%, up 15% QoQ; Japan, 17% (down 16%); Europe, 21% (up 48%); and Asia/Pac, 18% (up 127%). Europe was up sharply due to strong increases in demand from wireless OEMs for MultiMedia cards used in cell phones. Demand in Asia was particularly strong for multimedia cards (MMCs) used to store music in digital audio players. Cell phones could add $5 billion to TAM SanDisk signed agreements with Nokia, Ericsson and Siemens during the quarter to supply them with MultiMedia Cards for the company’s upcoming smart phones. We believe cell phones will be the next major end market for data-storage flash as our channel checks indicate several other cell phone vendors are currently planning on rolling out models in the coming months featuring SanDisk’s MultiMedia card as a storage device for music. We believe the cell phone market could add as much as $5 billion to the TAM of SanDisk. Our checks in the channel indicate Siemens already represents over 5% of SanDisks revenues only one quarter after shipments have begun. Product revenue breakout Estimated product revenue breakout was as follows: CompactFlash, 46% of product revenues, up 27% QoQ; FlashDisk, 14%, down 7% QoQ; MMC, 25%, up a strong 31% QoQ; SmartMedia, 6%, up 30%; and flash chipset, 7%, up 51% QoQ. The sharp increase in MMC sales was due to strong demand from the digital cell phone and digital camcorder markets. The strength in CompactFlash was driven by strong demand from the company’s digital camera manufacturers. Sales directly to customers were approximately 65% of sales, up 50% QoQ, retail sales, 25%, up 10% QoQ, and industrial distributors, 10%, down 32% QoQ. In a capacity-constrained environment such as data-storage flash, component makers will sometimes favor their top customers in allocation. The sharp increase in OEM sales is a result of strong demand across-the-board for SanDisk’s products in addition to the company slightly favoring its top OEM customers. The sequential decrease in sales to distributors was the result of the company being unable to qualify parts in time for shipment and a decrease in allocation. Capacity comes on line after die shrink During the quarter SanDisk successfully shrunk the linewidths on its 256 Mb products from 0.28 micron to 0.24 micron, which provided badly-needed capacity for the company and improved yields. In addition, SanDisk also began receiving wafer shipments from an additional fab at UMC, bringing the total amount of fabs at UMC producing wafers for SanDisk to three. We believe the combination of the additional fab and die shrinking should provide the company with a 50% increase in capacity over current levels. SanDisk continues to benefit from a faster-than-expected transition to 256Mb from 128 Mb products. We believe revenues were split 95/5 between 256Mb and 128Mb products during the quarter, and we believe the company is shipping 256 Mb products exclusively, a fact that should act to push gross margins higher. Balance Sheet Summary Cash decreased just over $266 million QoQ from $697.8 million to $431.2 million as a result of the company’s partial payment to Tower Semiconductor for supply of controller chips, increase in accounts receivable and payment to Toshiba for joint development of the new 512 Megabit flash card. DSO increased over 18 days from 52.9 to 71.1 days QoQ as the company received late shipments of wafers from UMC and consequently fell behind in billing the finished product. Inventory days increased 10 days QoQ from 50.3 to 60.1 days due to the company’s efforts to stock new retail outlets with adequate CompactFlash and MMC products. Changes to Model SanDisk reported a tax rate during 3Q00 of 37.5% due to increased profitability increasing the company’s tax rate, which was above our 35% estimate. Going forward we expect the tax rate to equal 36.5%, up from our original estimate of 35%. We also are raising our R&D assumptions to 12.0% of total revenues in 2001 from 10.5% due to planned spending on the company’s joint venture fabrication facility with Toshiba, named Dominion.