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

To: limtex who wrote (2822)	4/16/1998 10:13:00 AM
From: Jerome Wittamer	Respond to of 60323

Sequential analysis Products sales fell 24% since the 4Q due to the Japanese flu and strong seasonality. Revenues from royalties continued to grow faster than product sales, growing 24% this Q vs 18% last Q. The trend is pretty obvious now. It is a positive since profit margins are higher than on product revenues. However SanDisk knows it should also capitalize on the increased number of flash cards sold in '98 and beyond : SanDisk CF and MMC should keep a strong presence in their market. Cost of sales continue to increase further (or decrease less) than sales and overall revenues, although only slightly +13%sequentially in 4Q vs . This is a recent (since July 1, 1997) issue which must remain on the check-list for future P&L analyis. This is the case despite ongoing cost reduction programmes. I assume this trend relates to increasing prices of raw materials or products,... this will be checked with Cindy Burgdorf, CFO of the company. As a result of the above, gross profits fell 7%. R&D spending remains constant increasing at a rate of 10%, like between the 3Q and the 4Q of 1997. Please note that R&D expenses remain stable despite slowing revenues, this indicates a clear research strategy taken regardless of seasonal dips in the financial results. Not so surprisingly, sales and marketing expenses grew only 3% this Q. I would even have expected a slight drop but it's nice to see they continue on making every efforts in the winter. G&A expenses continue to remain constant since 1July 97. Decrease of 8% this Q. Operating expenses thus increased by a mere 3% since January 1, 1998. Very good thing indeed. Due to lower revenues but thanks to lower operating expenses, operating income fell by 20%. This level remains very acceptable. As expected, net income is hit by the full 35% corporate tax rate : this weakens the relative strength of this quarter's numbers. Net income fell 35% and net income per share 37%. Last but not least : overall profit margins shot up from 43.44% in 4Q97 to 47.89% in the 1Q98. Year-over-Year analysis From a more distant perspective it seems Rex's projected revenue growth rate (60%) is close to perfect! Indeed YOY growth, i.e. from 1Q97 to 1Q98 was 59%. So long-term : -royalties take a greater place as a percentage of revenues -gross profits are increasing at a rate of 93% due to only 37% increase in cost of sales (caution: take into account my remarks hereabove) -a great effort was made to improve marketing in terms of personnel and PR (+54%) -operating income crept up 290%, no comment! -net income jumped 63% and earnings per share 89% despite larger number of shares -overall profit margin improved dramatically due to changing mix towards increased royalties : from 39.54% to 47.89% Conclusion : Stay away from SanDisk, it is a badly managed company with falling sales and no future. Hhhep, sorry maybe it's the opposite. I reiterate my "hold or accumulate" rating. The hot money will stay away of this baby for a few more months. Keep your eyes opened. Best Regards to ALL, Jerome

To: limtex who wrote (2822)	4/16/1998 3:06:00 PM
From: Jerome Wittamer	Read Replies (2) \| Respond to of 60323

Regarding my mentioning there's no competition in the high capacity storage area I must add that it is not truly correct. It is partially correct. Sorry guys to be looking on the negative side, but this is necessary. From Iomega's site : About Click! dated November 13, 1997 The company plans to begin U.S. shipments of clik! drives and clik! disks to manufacturers and channel partners in the second half of 1998 with shipments in Europe and Asia beginning soon thereafter. Matsushita Communications Industrial Co., Ltd and Citizen Watch Co., Ltd. today announced that they have signed of letters of intent to license, manufacture and sell clik! drives. From other page of Iomega site : "We want the digital photography experience as accessible to consumers as traditional photography. Iomega's introduction of the clik! drives with access for our compact flash media is a major advance in this direction. These products will enable customers to take, use and store high quality digital pictures more easily." -Jeff Peters, General Manager, Digital Imaging in Kodak's Digital Applied Imaging Business This shows how Kodak is dedicated to CF. "Our customers have asked us to design increased functionality into our next generation Handheld PC so that they can be more productive on the road. clik! products will allow Hitachi Handheld PC users to download e-mail with attachments, cache web pages and use Pocket Word, Pocket Excel and Pocket PowerPoint programs freely, without space concerns. As a complete solution, mobile users no longer have to trade portability for functionality." -Lee Woodring, Director of Marketing, Hitachi Home Electronics (America), Inc. Better have a labtopPC!!! Anyway this shows there could be some competition in this area. Nothing else interesting! NO news since the fanfare introduction of click but the following : iomega.com Also,(off topic) from intel earnings release : Flash memory units shipped during the quarter were down slightly from the fourth quarter. The average selling price of Flash memory units was approximately flat with the fourth quarter.