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

To: pompsander who wrote (25602)	4/15/2004 8:54:48 PM
From: Art Bechhoefer	Read Replies (1) \| Respond to of 60323

pompsander--You bet it's a good article, though a bit thin on details. Nevertheless, the main point that people are not interpreting lower margins correctly is an important one, if not the most important factor in the current stock performance. I thought Harari went into considerable detail in the conference call about the TECHNICAL issues that explain why lower profit margins can still lead to higher profits because of the elasticity of demand as prices fall. This issue is also treated very clearly in the earnings report. Another factor that people seem to be ignoring is the growth in camera phones. Although Harari has mentioned camera phones on many occasions, the fact is that SanDisk is just beginning to become a major supplier to this market. Earlier, one would probably have found camera phones with small capacity flash made by AMD or similar manufacturer. But as customers demand higher resolution, the need for higher capacity flash memory will be filled in part by SanDisk. Harari has noted in the cc that camera phones ultimately may be the largest market, with ordinary digital cameras constituting a more mature market. He also noted the increasing popularity of flash storage devices and mentioned that storage devices benefit from lower prices. This is the essential mistake of many analysts: They think lower prices mean overcapacity and a glut in inventory. In fact, as Eli noted in the cc, there is no overcapacity. What really exist are lower production costs stemming from larger wafer sizes and smaller wire connections. This translates into higher profits, albeit with lower margins. Anyway, we are once again presented with a buying opportunity. Art