Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

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

To: Dave who wrote (24684)	1/22/2004 5:37:01 PM
From: Art Bechhoefer	Read Replies (5) \| Respond to of 60323

Dave, royalty income appears to be increasing at a faster rate than total shares. This is partly because some of the newer formats, such as SD and miniSD, have SNDK patents. And Eli mentioned that many, if not most cell phones with cameras are now using the miniSD card. Market demand for SNDK, created in part by the incomplete information published by analysts, the media, etc., does not reflect the rapid increase in demand for camera phones. The royalties and also the actual flash cards to be used with these cameras have been underestimated. You can't assume that SanDisk will predict the total growth in demand in this area, as there are too many unknowns, and a company must stick to the conservative side to avoid misleading its shareholders and the public. Tied to this notion is the continually falling price of flash cards, which Eli has noted on many occasions results in such an increase in demand as to outweigh lower unit profits. Lastly, I think investors should look more closely at the key decisions made by company management over several years in order to get a better idea about management quality. Just a little over five years ago, SanDisk had a total market value of about $250 million, which was barely $50 million over its book value. At that time, Kodak could have bought all or most of SNDK shares for what it paid for the dry x-ray business of Imation. That dry x-ray business returns a modest profit, but its growth can't begin to compare with SanDisk. SanDisk positioned itself in both retail and manufacturing, creating enough intellectual property along the way to enable it to have exceptionally good gross margins. SanDisk also maintained high levels of cash and low levels of debt as it expanded from a fabless producer to a co-owner of manufacturing facilities. Kodak, by contrast, desperately tried to play down the importance of digital photography and ended up admitting today that it would have to cut another 20,000 or so employees worldwide. Given the horrendous series of decisions at Kodak, which resulted in a drop of 83 percent in its most recent earnings, one would expect Kodak stock to drop, and by contrast SanDisk stock to rise. What actually happened was that SanDisk dropped some 15 percent and Kodak went up 10 percent. When I see market action like that, I know that something very bizarre is happening, and I do not hesitate to take appropriate action in the markets. We are seeing yet another example of why the efficient market theory is flawed, to say the least. When the markets are this much out of kilter, they create some very good investment opportunities. In a few weeks (after the institutional investors have replenished their accounts with appropriate amounts of SNDK), we will begin to see more investment firms recommending the shares. Art

To: Dave who wrote (24684)	1/22/2004 6:53:45 PM
From: Andre Williamson	Read Replies (1) \| Respond to of 60323

Dave, my point is that there's no point sticking doggedly to metrics when so much of the buying and selling of certain stocks is momentum driven. (I'm not saying (one,you,I) shouldn't invest based on fundamentals, just that not all trading or stock pricing of others can be explained by fundamentals). If institutions are so smart, why in hell's name were they doing all that buying at $80/share? Fundamental analysis? And shouldn't they all be loading up, given that Sandisk blew away expectations and offered pretty positive guidance? This is semiconductors...are you suggesting all the institutions simply forgot it's a cyclical business until Sandisk reminded them yesterday? Something isn't consistent here... But if we're going to stick to metrics... Regarding your comment about earning a $1.25 per share. Remember in the 4th Quarter, fully diluted shares stood at 95m and they only earned 97m in licensing revenue. Going forward you are looking at less than a buck per share in royalties. I'll admit I was using my 'back of mind calculator. On closer inspection, since guidance is for "License and royalty revenue of approximately $30 million per quarter with potential upside in the first and fourth quarters" then we would expect $1.26+/share on a base of 95 million shares. Not miles from ~$1.25, wouldn't you agree? We can quibble to the next level: even assuming there's dilution and none of the 'potential upside," guidance is still for much more than "less than a buck per share in royalties." [As a reference point, quickly checking the historical financials, royalties more than doubled last year, while dilution was nowhere near 100%.] Hynix/STM and Micron will enter w/o signing a licensing agreement. IIRC, Sandisk successfully got an injunction against Samsung for shipping infringing products (without going to trial). Given the likely legal beating both Hynix and Micron are likely to take re:Rambus, I'm not so sure they'd want to purposely infringe on yet another company's patents. (Micron is apparently already cooperating with a DOJ investigation, allegedly admitting to anti-trust violations, presumably fingering Hynix/IFX in an attempt to avoid punishment. thestreet.com What you are doing is "speculating"... What am I doing, exactly? Andre PS: In October for a class I ran a detailed cost of capital calculation and came up with just under 14% using CAPM.