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Strategies & Market Trends : Gorilla and King Portfolio Candidates -- Ignore unavailable to you. Want to Upgrade?

To: MARK BARGER who wrote (34658)	11/13/2000 6:49:22 PM
From: John Stichnoth	Respond to of 54805

You're right that the 5 Year forward estimates are the most suspect numbers shown. Mike Buckley, I think, has said that he totally disregards them. I wanted to put in something that would relate future earnings growth, and that was all that was available in my "quick and dirty" data pickup. This should be just a starting point for looking at relative valuations, as a lot of the companies have odd numbers here or there. SNDK, for instance, a couple of quarters ago had a one-off event that really helped their EPS, since GAAP apparently forced them to take into regular income instead of non-recurring items. It's going to make for a very tough comparison over the next year. I have trouble reaching a firm estimate of my confidence of future earnings for any company. If two companies seem comparable in other respects, then surely we should be buying the one that (1) we are surest will make its numbers going forward (did someone say "Cisco"?), or (2) is most likely to blow by estimates (Rambus?! Who knows?)

To: MARK BARGER who wrote (34658)	11/14/2000 12:32:29 AM
From: EJhonsa	Read Replies (1) \| Respond to of 54805

At any rate I contend that SNDK is indeed not cheaper than Cree. Sandisk is in an odd case for me. Given my preference to invest in companies with significant competitive advantages over their rivals, I was a bit hesitant to put any money into this one, given how, for all intents and purposes, the removable flash memory card market, from which Sandisk attains most of its revenues, is commoditized in a manner similar to that of the DRAM industry. In other words, some companies can attain economies of scale advantages, and can beat others in terms of getting a product launched, but no significant technological advantages exist. Still, I decided to make a small investment in the company due to the astounding growth that it could see in the next couple of years, growth that could very well rival Cree's. Right now, the bulk of all removable flash memory card sales come from their use in conjunction with three products: digital cameras, PDAs, and MP3 players. As I'm sure all of you know, each of these markets have been growing quite rapidly, and thus so has Sandisk. However, the combined size of these markets pales in comparision to what an emerging application for these cards might bring in a couple of years: the use of removable flash cards within wireless handsets, spurred by the integration of MP3 players and digital cameras into these devices. To gain some perspective on the potential growth that the cell phone market could bring to the flash card industry, it should be noted that Sandisk, the current leader in this field, sold 4.7 million cards last quarter. In comparision, it's expected that roughly 420 million handsets will be sold this year, with about 575-600 million expected to be sold next year, and close to 1 billion by 2003. Granted, of those billion or so handsets that'll be sold three years from now, a large number of them won't come with flash card support. Still, it's possible that 15-20%, or 150-200 million, could, each replete with a flash card pre-installed, and it's possible that another 20-30 million replacement/upgrade cards could be sold. Now, what's important to ascertain is what % of these cards might be sold by Sandisk. Right now, it seems that the entire industry's rallying around a format known as the Multimedia Card (MMC), which is preferable due to its small size and weight (each card weighs roughly 2 grams on average). Currently, Sandisk, in an alliance with Toshiba, is one of two major mass manufacturers of MMCs, the other being Hitachi, in an alliance with Infineon. As far as the battle for dominance withiin the handset market goes, Sandisk has jumped out to a fairly large lead early. While Hitachi/Infineon only have a secondary deal with Siemens (Sandisk appears to be their primary supplier), Sandisk's customers base also includes Ericsson. Furthermore, they'll most likely also be chosen as Nokia's primary supplier, considering how they already purchase MMC cards from Sandisk for use in their 9110 product. Even as more entrants get into this field, given the lead and customer relationships that Sandisk currently has, it's possible that they could have 30-50% of the handset-related market for MMC cards three years from now. If you do the math here, and factor in the growth the company could see from its other markets, and Sandisk can come across as a decent investment opportunity even if it operates in a fairly commoditized field, (thus putting a limit on the multiples it receives going forward). Eric