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

To: Sam who wrote (26780)	10/13/2004 6:23:51 PM
From: Art Bechhoefer	Respond to of 60323

Sam, the low earnings a year ago were due in part to a very large write down of UMC shares that were stolen in Taiwan. Even so, the year over year gain in revenues was 45%. What raised eyebrows and led to the share price drop after hours was mainly the lower than expected gross margins. There are a number of reasons for this, but one reason that I thought was really interesting was the INCREASE in sales of non-captive flash cards (i.e., cards made by another fabricator, such as Samsung). Previously SanDisk was making up to aobut 80 percent of its own cards and buying about 20 percent from other suppliers. This ratio dropped to 65-35% in the third quarter. Many of us on this thread were thinking that a so-called glut in supply would lead SNDK to REDUCE its purchases of non-captive cards, when they actually raised them. Why did they do this? One of the questioners on the cc asked this question, and the answer was that SNDK made a decision to supply whatever its customers wanted to buy. That is, they opted for maintaining or increasing market share at the expense of supplying only their own cards. This led to lower profit margins and disappointed many of the analysts. But Eli also noted that the ultimate objective remains to increase net income, even if it means lower gross margins. They're doing that, but some investors may disagree with the strategy. Art