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

To: Sam who wrote (27324)	1/27/2005 4:25:37 PM
From: broozer	Read Replies (2) \| Respond to of 60323

absolute blowout quarter...........Merrill and BS publicly blew this big time! Boy, are they dominating the flash market right now.

To: Sam who wrote (27324)	1/28/2005 9:39:30 AM
From: Robert Douglas	Read Replies (1) \| Respond to of 60323

Bear Stearns' response today. SanDisk reported better than expected 4Q results. The upside was mostly driven by product gross margin, which came in at 32% versus our estimate of 21% and guidance of 27%-30%. Revenues of $549M (+34% QoQ) were above our estimate of $504M (+24% QoQ), consensus of $505M (+24% QoQ), and guidance of $500-$530M (up 26% at the mid-point). EPS of $0.42 beat our estimate of $0.19 and consensus of $0.27. We believe the margin upside was primarily due to a greater than expected cost reduction on its captive supply. SanDisk’s average product costs declined 37% QoQ per megabyte, compared to our estimate of a 29% QoQ decline. The company had an aggressive 90 nanometer ramp, which represented slightly over 50% of captive supply in 4Q versus 10% in 3Q. Management noted that 90nm yields were better than the company’s expectation – we believe that the speculated yield issues at FlashVision could have been concentrated earlier in the quarter, during the early stages of the 90nm ramp. ASP per megabyte declined 34% QoQ, approximately in line with our estimate of a 36% decline and compared to guidance of a 30% decline. Megabyte shipments increased 110% QoQ, versus our estimate of 100% QoQ growth and guidance of 89% growth. As expected, SanDisk cited strong holiday season sales, the impact of price elasticity on demand, and its new MP3 product line for the strength in shipments. No specific revenue guidance was provided for 1Q05, although the company indicated that its retail revenues are expected to experience a more pronounced seasonal decline than in the past, as its product portfolio is more seasonal due to the addition of digital audio players. On the pricing side, retail ASP is expected to decline 15% QoQ, which is a more significant decline than our prior estimate of a 10% overall ASP decline. Product gross margin guidance was 32%, flat compared to 4Q04. We are raising our 1Q05 EPS estimate from $0.18 to $0.26, due primarily to better margins. Our revenue estimate of $418M assumes sequential declines of 15% and 14% for ASP and bit shipments respectively. For full year 2005, we are raising our EPS estimate from $1.07 to $1.19, due primarily to an increase in our product gross margin estimate from 25% to 29%. We give full credit to SanDisk for its very impressive captive cost reduction achieved in the quarter, and being able to distinguish itself from the competition because of that and its hybrid business model. However, we remain concerned about an oversupply in the flash memory industry in 1H05, given new entrants into the market which we expect will meaningfully ramp production in 1H05, in conjunction with a seasonal slowdown in demand. We would note that SanDisk’s inventory increased at the end of the fourth quarter in dollar terms, despite strong shipments, which the company attributed to increased consigned inventory at some of its large retail customers. At the component level, we believe the recent tightness and firming up in flash prices has been largely driven by inventory replenishment by flash card vendors, and we expect a retrenchment in chip procurement as we advance further into the seasonally weak first quarter. As a result, we anticipate pricing pressure to return in the near-term. We are maintaining our Underperform rating on SanDisk shares. Though we are impressed with the company’s cost reductions in the quarter and the benefits of its hybrid business model, a number of challenges remain, including: (1) a below normal seasonal quarter in 1Q05, (2) the retail flash card market is seeing increased competition, (3) we think it is highly unlikely that the company will be able to demonstrate a similar cost reduction in upcoming quarters as it did in 4Q04, (4) our concerns of an oversupplied flash market, as outlined above. Following the rally in the aftermarket, we do not see a catalyst for the stock, and expect the stock to drift lower over the next 2-3 months.