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

To: TimC who wrote (4437)	1/24/1999 10:35:00 AM
From: Daniel Joo	Respond to of 60323

Earnings are announced tomorrow. If SNDK doesn't beat the street and whisper numbers, look out - currently at $0.10 per share. My understanding is that this year's 401K money will start flowing into the market this coming week. I'm watching cash flow into equity funds closely. Any declines will bode a downturn in the market - IMO. Hopefully ,people have decided to allocate their moneys to equity funds as they have in the past.

To: TimC who wrote (4437)	1/24/1999 10:41:00 AM
From: Ausdauer	Read Replies (7) \| Respond to of 60323

Tim and thread, I wanted to add a couple of points that impressed me in re-reading the last quarterly report. 1) It seems clear that the company is a bit uncomfortable entering into the realm of retail sales. Consumer demand is a moving target. Digital camera sales were at least a year late in solidifying. There are just too many fuzzy variables when one steps into retail sales. In essence, SNDK is best at inventing, researching and developing cutting edge flash memory products. They have been successful in having their intellectual properties enforced. They have experience substantial royalty revenue growth. But, they are just dipping their big toe into the tepid waters of retail sales. The notion of shipping product with the understanding that some portion will be returned for a refund is a foreign concept. As a result they have spent a considerable amount of time, effort and money in developing domestic and overseas retail exposure. Now, if you think back to the work they did in creating industry standards for CF and MMC, it seems logical that they will pursue their base strengths, intellectual properties, in an unrelenting fashion. The Lexar suit continues to mention infringements of "fundamental patents". If Intel, Toshiba, Samsung, Hitachi , Sharp and the rest cannot design around fundamental intellectual contributions, it seems unlikely that a private start-up like Lexar can. It also is apparent that SNDK would never risk valuable R&D investments by creating an open standard that would force them to enter an environment of highly competitive, low margin, consumer electronics. The SSTI releases I have mentioned in the past suggest that other flash competitors will not confront SNDK in such a brazen fashion. The Lexar case is the test case that will tip over a long row of dominoes. 2) Last year the company offered options to employess at $12.00/share. As the price fell the company cancelled and regranted these options at only $10.00 a share. A total of 903,425 shares (~3% of the float) were purchased through this benefit option. Officers and directors were not eligible for participation. That means that the SanDisk workforce is clearly behind the company. Think of a small company with such strong employee support. Nearly $10 million dollars worth!!! The company also expended $1.8 million dollars to reward its employees as the stock price plummeted. That kind of goodwill goes a long way, especially considering the appreciation in stock price since the grants were exercised. 3) The royalty stream again mentions the timing of sales by licensees suggesting that some of the royalties are tied to general market demand. I have no clue which products this includes, but if you look at demand for flash products in general (see my Atmel post) and if we presume that SmartMedia utilizes SNDK EEPROM patents, we could do well over $8 million in pure royalty revenue for Q4. Eli promised a background royalty influx of $7.5 to $8.0 million/quarter for the next 8 quarters during the c.c. Recall that deferred revenues were at an all-time high of $31,722,000 at the end of last quarter. Cindy Burgdorf alluded to the fact that unrecognized royalty payments make up a substantial portion of that sum. The timing and amount of these payments can vary substantially from quarter to quarter,depending of the terms of each agreement and, in some cases, the timing of sales of products by the other parties. As a result, license and royalty revenues have fluctuated significantly in the past and are likely to continue to fluctuate in the future. Given the relatively high gross margins associated with license and royalty revenues, gross margins and net income are likely to fluctuate more with changes in license and royalty revenues that with chages in product revenues. 4) There is alot of doom and gloom in the report regarding OEM sales and design-ins for CF. Obviously the design-ins are already here. Now think of Kodak and Nikon camera sales and the fact that there is a private label (OEM) card in each box. Also recall that these companies (and Agfa and Casio) will be reordering for 1999. Kodak, for example, was sold out completely for part of the Christmas season. (I know, I tried to buy a DC210 plus ended up on a waiting for two weeks.) 5) ImageMate card reader sales will likely be significant. I have no insight into the volume of sales or margins, but I suspect that they may make a minor contribution to Q4 revenues. 6) Didn't we do $0.09 last quarter??? It just doesn't seem to make any sense that we will repeat this. All IMHO. Do your own due diligence. I would like to see earning in excess of Q4 1997. Therefore, I will not be surprised with a favorable report tomorrow with earnings exceeding $0.32. Ausdauer (24)