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

To: Art Bechhoefer who wrote (24131)	12/8/2003 7:24:15 AM
From: Road Walker	Read Replies (1) \| Respond to of 60323

Art, re: The question is whether the decision to expand now, at a cost of more than $1.8 billion (shared with Toshiba) is reasonable. Many analysts think it isn't. I think it is. I agree with you. My caution is driven by valuation and information we don't know. While the lead time for a building a fab is a supply constraint factor, many, including Samsung are talking about switching lines from RAM to flash. I'm not sure what the lead time is for that. Infineon is getting into the business. Everything you read is about folks racing towards capacity. Sandisk is selling at ~50x trailing, I think ~28x estimates. Probably not unreasonable if everything stays the same wrt earnings. But if additional capacity were to come on line, and demand growth were to stall, even on a seasonal basis, then those estimates could come down. And (I think) SanDisk is priced for a perfect scenario. There are smart folks out there with access to supply demand data that we simply don't have. And SNDK certainly demonstrated that someone is selling heavy volume(SNDK v. SMH - finance.yahoo.com ). So that could be the signal to stay clear for the time being. Hell, I don't know. I'm just sounding a note of caution. MHO is that SanDisk is a very good company in a good position in a good market. But I think you will be able to buy it cheaper. I've got a track record of being both right and wrong. John

To: Art Bechhoefer who wrote (24131)	12/8/2003 11:39:46 AM
From: Howard R. Hansen	Read Replies (1) \| Respond to of 60323

The question is whether the decision to expand now, at a cost of more than $1.8 billion (shared with Toshiba) is reasonable. I am trying to estimate how much SanDisk revenues will increase after the new fabrication plant Toshiba and SanDisk are building comes on line. One approach to the estimate goes as follows. If SanDisk invests 900 million in the plant and needs a return on investment of at least 15% to justify the investment than the plant needs to make a profit off at least 135 million a year for SanDisk. Next assuming SanDisk's operating margin doesn't change then the increase in revenues should be equal or greater than 135 million divided by .22. This approach estimates the increase in revenues is 614 million. Is this approach reasonable or is there a better method for estimating the increase in revenues from the new fabrication plant.