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To: Logain Ablar who wrote (40482)	12/16/2003 2:06:50 PM
From: Johnny Canuck	Read Replies (1) \| Respond to of 69209

Dow Jones Business News Shares of SanDisk, Lexar Media Decline Amid Concerns Tuesday December 16, 1:37 pm ET By Roger Cheng NEW YORK -- Shares of two flash memory card makers tumbled Tuesday amid concerns that an excess supply of chip sets for the cards could drag pricing down, according to one Wall Street analyst. Shares of SanDisk Corp. (NasdaqNM:SNDK - News) and Lexar Media Inc. (NasdaqNM:LEXR - News) both fell as much as 11% after South Korea's Samsung Electronics Co. said it plans to invest 628.8 billion won ($531.8 million) to boost its output of dynamic random access memory, or DRAM, and flash-memory chips. ADVERTISEMENT In addition, W.R. Hambrecht analyst Satya Chillara pointed to concerns fueled by an article that appeared on EBNews.com about three companies jumping into the flash memory chip business. EBN is a print and online weekly newsletter that focuses on business management in the electronics industry. The story published late Monday purports that the shortages in the chip sets used for flash cards could end as early as next year with Micron Technology Inc. (NYSE:MU - News; MU), South Korea-based Hynix Semiconductor Inc. and STMicroelectronics NV (STM) entering the fray with their own chip sets. Samsung is one of the largest producers of chips known as NAND chips, which go into flash memory cards made by Lexar and SanDisk. But with its additional output and three new suppliers, flash memory pricing power would deteriorate as supply spikes, Mr. Chillara said. The issue has lingered for the past month, and was reignited by the article and Samsung news, he added. But Mr. Chillara was quick to point out that Samsung wouldn't jeopardize its " golden goose" by flooding the market with a glut of chip sets. He added the companies proposing to jump into the business likely won't have anything out until the end of next year or early 2005, although Hynix may be able to begin production by the second half of 2004. "We still like both companies," Mr. Chillara said. With the run-ups in stock prices both companies experienced earlier this quarter, investors are "dumping the stock first, and asking questions later." Mr. Chillara doesn't own shares in either company, and W.R. Hambrecht doesn't have any investment-banking relationships. Representatives for the two companies couldn't immediately be reached for comment. At about 1:10 p.m. EST, shares of SanDisk were down $6.27, or 10%, to $54.59, and Lexar's share fell $1.34, or 8.1%, to $15.20. Both stocks are traded on the Nasdaq Stock Market (News - Websites) . SanDisk is under more pressure than Lexar because it is seen as the company that may face more margin expansion if Samsung does increase chip production, Mr. Chillara said. SanDisk has an agreement with Japan's Toshiba Corp. to co-fund a production plant for NAND chips. Mr. Chillara said it is possible that Lexar could purchase cheaper NAND chips from Samsung and pass the savings on to customers, while SanDisk is stuck with the more expensive Toshiba chips and more competitive pressure. "People are assuming Samsung is going to spoil the party," the analyst said, adding he doesn't believe Samsung will destroy pricing in 2004. Mr. Chillara noted many of these concerns are "in theory" and that "a lot of if's have to happen" for all these scenarios to pan out. The analyst added profit-taking may be another reason the stocks are seeing such pressure. Both companies saw run-ups prior to the holiday season, with SanDisk hitting a 52-week high in early November and Lexar recording its high in late October. - Roger Cheng, Dow Jones Newswires; 201-938-5393; roger.cheng@dowjones.com

To: Logain Ablar who wrote (40482)	12/22/2003 2:51:47 AM
From: Johnny Canuck	Read Replies (1) \| Respond to of 69209

DECEMBER 22, 2003 STREET WISE By Amey Stone Network Appliance: A Bit Too Good? The data-storage company is going so great, some portfolio managers think it has peaked. They could be wrong On Dec. 3, data-storage company Network Appliance (NTAP ), one of the hottest stocks of 2003, briefed analysts on its forecast for its next fiscal year. Fiscal 2005 sales would grow around 25% (most analysts were projecting 20% growth), to $1.4 billion, and earnings would come in at around 51 cents a share -- nearly 35% higher than fiscal 2004's expected results. Nonetheless, the analyst briefing failed to reverse a slump in the stock that started after Network Appliance reported a near-doubling of profits for its second quarter of fiscal 2004 on Nov. 18. It traded as high as $26 before announcing pro forma net income of $33.6 million, or 9 cents a share (reported income was even higher due to a tax benefit), up from $17.5 million, or 5 cents a share for the same quarter a year earlier. By Dec. 19, the stock was trading at $20, down more than 20% since the company started reporting so much good news. So what's the problem at Network Appliance? PAST ITS PRIME? Call it too much of a good thing. When the stock was at $26, investors had scored a 160% gain since the beginning of 2003, and the share price was looking a bit overdone. It was trading at 10 times sales, when most tech stocks with the same growth projections trade at more like five or six times sales, says Omar Al-Midani, an analyst with Soundview Technology Group. It was trading at a price-earnings ratio of 64 times 2004 earnings. "Even for its growth rate," notes Al-Midani "it was really highly valued over its peers." Network Appliance's business may also have been getting a little too good for the tastes of some investors, who worried that peak growth was priced into the stock. Not only has it held onto its leadership as a maker of midrange networked-storage appliances this year, according to market research firm IDC, but it is successfully expanding into new markets for high-end storage area networks (SANs) and low-cost disk-based backup and recovery systems. For investors who missed out on Network Appliance's run, the December skittishness of portfolio managers may prove a buying opportunity in a few months if the company can continue to execute on its business strategy as well as it has in the past. RED FLAG. Chances are good that it can. Lack of diversification was the key risk for Network Appliance a few years ago. "Now the company can play in almost all areas of the market," wrote IDC analyst Brad Nisbet in an e-mail interview. "The phrase 'firing on all cylinders' comes to mind." Network Appliance has also diversified its customer base. Instead of 75% of its revenues coming from Internet and tech companies, as was the case two years ago, now just 25% comes from that group. An important growth strategy is to win a higher percentage of the amount spent on storage equipment from those new customers, says Network Appliance Chief Financial Officer Steve Gomo. The red flag for that strategy is intense competition, say analysts. Network Appliance's 2005 forecasts assume that it won't face any pricing pressure. But Al-Midani finds it hard to believe it won't have to give just a little bit on price as it tries to sell more equipment to big companies. "The problem with Network Appliance is that if it grows just five percentage points less than expected and margins come down five points, those two things hit your earnings-per-share number by 50%," he says. PULLING THROUGH. Gomo admits that Network Appliance's gross profit margins may slip from its current very rich 60% level to 58% or 59% in 2005. But that's not because of competitive pressures, which it has proved it can deal with handily for the past couple of years, he says. Instead, it because Network Appliance will derive a higher percentage of its revenues from services and from sales through its partners and resellers, both of which have lower gross margins, he says. Gomo says the superiority of the software that goes into its equipment will allow Network Appliance to maintain its industry-leading margins. He's neither surprised nor worried that some investors, especially professional portfolio managers, have used December to lock in gains. He's confident they'll be back next year. They may well be. Al-Midani admits that Network Appliance has a remarkable record of executing well on its strategy even in tough times. Look at storage king EMC (EMC ), which from the storage industry's peak sales in the fourth quarter of 2000 to its trough in the third quarter of 2001 lost more than half its revenues and halved its gross margins. In contrast, Network Appliance's revenues fell 32%, but its gross-margin decline was only 2%, says Al-Midani. Even if 2005 is a tough year for business, it's not likely to be as bad as 2001. Current buyers should keep in mind that Network Appliance is still darn expensive. And as recent events show, a sharp sell-off could be triggered by the slightest suggestion that steep profit growth could be a little bit harder to come by in the future –- even if no evidence show that's starting to happen yet. -------------------------------------------------------------------------------- Stone is a senior writer at BusinessWeek Online and covers the markets as a Street Wise columnist and mutual funds in her Mutual Funds Maven column Edited by Beth Belton