W) Is SSTI a flash in the pan?
Rated a Watch
Reason for DD
Passed the Mid-summer screen test
Business
Silicon Storage Technology, Inc. is a supplier of flash memory semiconductor devices for the digital consumer, networking, wireless communication and Internet computing markets. Flash memory is nonvolatile memory that does not lose data when the power source is removed and is capable of electrically erasing selected blocks of data. The Company offers over 40 products based on its SuperFlash design and manufacturing process technology. The Company also offers mass storage products that are used for storing images, music and other data in devices such as digital cameras and MP3 players. The Company licenses its SuperFlash technology to leading semiconductor companies including Analog Devices, ATMI, IBM, ISD, Motorola, Samsung, Sanyo, Seiko-Epson and TSMC to embed in semiconductor devices that integrate flash memory with other functions on a single chip.
Competitors
AMD, INTC, SNE
News
8/3/2000 SSTI responds to concerns--1:50 pm - By Chris Kraeuter
Silicon Storage Technology (SSTI: news, msgs) responded to concerns that a slowdown in cellular comonents will negatively affect its business. Wednesday evening Lehman Bros. analyst Tim Luke said Motorola (MOT: news, msgs) will be cutting back its handset component consumption during the second half of the year (See 8:40 item). According to a statement, SST says less than 2 percent of its second quarter revenue comes from products sold in the cellular handset industry. "We do not expect that any slowdown in the cellular components market would impact SST in a material way. We continue to see strong growth in our business across the board and believe we are well-positioned to continue revenue and profit expansion well into 2001," said Bing Yeh, president and CEO. SST shares reversed earlier losses and are now up 11/16, or 1.2 percent, to 56 5/8.
Net revenues for the second quarter were $103.2 million, grew 66% from $62.3 million in the first quarter of 2000, and 349% from $23.0 million in the second quarter a year ago.
Net income for the second quarter of 2000 was $22.5 million, or $0.71 per share, based on approximately 31.9 million diluted weighted average shares outstanding. This compares with a net income of $9.6 million in the first quarter of 2000, or $0.34 per share, based on approximately 28.3 million diluted weighted average shares outstanding, and with a net loss in the second quarter of 1999 of $3.6 million, or a loss of $0.15 per share, based on approximately 23.7 million weighted average shares outstanding.
``We are pleased to report record results for the third consecutive quarter. Our business continued to be driven by the strong demand for our products and by the production ramp of over 50 new products, most of which were introduced over the past several quarters,'' said Bing Yeh, president and CEO. ``Demand for our products continues to outstrip our capability to supply. We expect to continue increasing our capacity to meet the growing demand.
``During the second quarter, we continued to execute our diversification strategy by expanding our market presence in a very broad range of applications in the digital consumer, networking, wireless communications and Internet computing markets. We saw strong growth of product shipments in many applications including set-top boxes, digital TVs, CD-RW drives, DVD-ROM drives, DVD players, MP3 players, network switches and routers, DSL modems, pagers, cellular phones and cordless telephones. We have also shipped over 500,000 units of Intel 800 series chipset compatible 4Mbit Firmware Hub product for PC BIOS applications during the June month.
``During the second quarter, we also continued to execute on our product proliferation strategy by developing more differentiated products to serve targeted applications including future generation cellular phone, wireless modem, Global Positioning System, Bluetooth, Internet Appliance, small disk drive, electronic organizer, smart card and video games. ``We believe the flash market will become more and more fragmented, characterized by the coexistence and continued growth of all memory densities and various configurations to meet the specific requirements in each of the emerging broad applications. As a result, we believe our strategy of diversified product offerings and technology licensing for embedded applications not only will maximize our growth potential, but also can minimize our business fluctuations due to the seasonal weakness of any particular application segment. ``With more than 50 new products introduced since mid-1998 that serve a wide variety of applications, the additional wafer capacity that we expect to bring on line in 2001 and more than 40 new volume purchase and supply agreements that we expect to sign with our customers, we believe SST is well positioned to take advantage of the current industry upturn. Looking forward, we expect to see robust growth in our business through the balance of 2000 and well into 2001,'' he said
CC notes 7/19/00
-103M in rev
- 10% revs in wireless
- 23% Japan/Korea rev, 16% China
- 44% gross margin vs 26% a year ago
- 5% in sales and markets
- 3.7M in G&A
- 27% operating profit vs losses last year.
- 216M in cash/securities
- 84.6M in accounts receivables
- Demand two times capacity
- Trying to be leade4r in 8Mb and under products
- Internet appliance, GPS, video games, Bluetooth, are some of our target sales area
- Believe diversified product category minimize sector downturn
- NSM licensing agreement for super-flash technology
- 3Q will be affected be increase tax rate, 25% sequential growth resuming in Q4
- No customer more than 5%, Gross margin should be flat due taxes
- Believe some double booking, but can only deliver so much due to demand,
- Really don’t see much competition in the low end which is our target area. High end memory is much more competitive.
- Said AMD telling customer to use 32Mb product because lower memory products won’t be produced anymore.
Analysts and Others
A strong case can be made that AMD's shares are undervalued. The shares are actually trading at a discount to what the firm's flash unit could trade for on its own, assuming that it would command a trailing price/sales ratio similar to those of pure-flash players like Silicon Storage Technology (Nasdaq: SSTI - news) and SanDisk (Nasdaq: SNDK - news). Of course, AMD is not a pure play on the flash market, but as of the end of 1999, it was second in market share behind Intel.
biz.yahoo.com
Meanwhile, SST's share earnings of $0.71 blew the doors off of the Wall Street consensus, and even some of the highest ``whisper'' numbers that had been circulating in the investment community. That's compared to a $0.15 per-share loss for the year-ago period. In addition, the revenue mix by product application appears to show healthy diversification, which would enable it to better withstand a demand shift in any one area. Check out some of these numbers: Digital consumer applications revenue (47% of the second quarter total) are up 474% year-over-year Networking (17%) -- +580% Wireless Communications (10%) -- +2668% Internet Computing (26%) -- +175%
Management indicated strength across a wide range of products, including set-top boxes, digital TVs, computer peripherals (CD-RWs, DVD-ROMs), network switches and routers, pagers, among others.
But, since last week's earnings release, the stock has languished.
What gives? It primarily has to do with one fact that many individual investors underemphasize when weighing an earnings release against the stock's current valuation:
The numbers are backward-looking. In the case of SST, most of the investment community had anticipated an upside surprise for the quarter. Granted, the extent to which it beat expectations should factor somewhat into a valuation adjustment. But what Wall Street was really looking for was some clarity as to the health of its future prospects. Specifically, what the flash memory market and its business will look like going forward. While management should be applauded for its strong level of guidance, and frank discussions during the conference call, as well as its stellar performance to date, the dialogue brought as many lingering questions to the table as it did answers. The picture through the end of the year, though, seems to be pretty clear: SST's strong operating performance should continue. Management indicated it is looking for better than 25% sequential revenue growth in both the third and fourth quarters. Gross margins, however, should remain relatively flat, as it expects to encounter increased costs to ramp up manufacturing at geometries of 0.18 microns and below, which is necessary to produce higher-end, higher-density (16 Mb and above) chips. In addition, earnings will be fully taxed beginning this quarter. The new tax rate in the range of 33%-35%, compared with a 26% rate in the second quarter, and just 4% a year ago, will likely mute earnings growth for the third quarter, then accelerate in line with revenue growth through the year's end.
Currently, SST faces little competition in its strongest product segment - flash memory with densities of 2Mb and below, which accounted for 80% of the company's unit shipments in the second quarter. In fact, management stated that demand is more than double the supply of many of its products, which should ensure that both order growth and pricing will remain firm. Moreover, the question of whether or not flash memory prices are flattening in the spot market should not materially affect SST. That's because nearly 100% of its chip shipments are contracted through Original Equipment Manufacturers (OEMs), and most of which will continue to pay premium prices while the chips are still in short supply.
So what's the catch? Well, none, really. But the extent to which SST can rake in the profits in 2001 and beyond is still quite cloudy at this stage. Here's why: The sweet spot in the 2Mb and below flash memory market will ultimately give way to technology that requires flash memory with increasing complexity and density. When the majority of SST's business shifts toward chips with densities of 16Mb and above, they enter the arena where some large and powerful competitors operate.
The list includes Advanced Micro Devices (NYSE: AMD - news), Intel (NASDAQ: INTC - news), ST Micro (NYSE:STM - news) , Atmel (NASDAQ: ATML - news) and others. In fact, AMD and Intel are already aggressively promoting the adoption of more complex chips over lower-end solutions to its customers. A move further into the high-density mass-data-storage market would bring competition from SanDisk (NASDAQ: SNDK - news) and M-Systems (NASDAQ: FLSH - news), which are already established players here. The industry is rushing to bring new capacity online. Starting in 2001, the influx of new capacity may well start to balance the supply/demand picture, while it would likely intensify competition and potential pricing pressure. In this scenario, order bookings should also be watched closely. Typically, in a market of undersupply, companies desperate for a product will overbook orders with a number of suppliers, in hopes that most or all of its needs will be fulfilled. Overbooking likely exists in many flash memory orders, which may lead to a sharp number of cancellations once new supplies actually reach the market. Also, SST is a ``fabless'' flash producer; it depends on foundry agreements with Sanyo (NASDAQ: SANYY - news), Taiwan Semiconductor (NYSE: TSM - news), Seiko, Samsung, and National Semiconductor (NYSE: NSM - news) . In a tight-supply environment, SST may not be able to produce the quality and quantity of chips it desires through third-party manufacturing channels.
Going forward, further margin improvement may well prove difficult for SST. Silicon wafer prices were up 5% to 8% in the second quarter, the first such increase in years, and management stated that more price hikes are likely on the way. In addition, the shift in mix toward higher-end chips should increase production costs beyond the company's year-end guidance. That's not to say SST's future beyond the year's end is all doom and gloom. For one, SSTI's SuperFlash technology seems to have a number of competitive advantages, in terms of cost, scalability, reliability, and the flexibility for use in both low-density and high-density flash applications. As a result, any erosion of SST's current customer base may be minimal, provided it can produce the necessary product in sufficient quantities. Licensing revenue, which only generated about 1% of second-quarter revenue, should receive a boost on the heels of its new deal with Apacer, a subsidiary of Acer Inc., the Taiwanese firm best known for its line of PCs. Through the agreement, Apacer will exclusively use SST's proprietary SuperFlash ATA controller and firmware in its products (including set-top boxes, network computers, PDAs, cell phones, etc.) beginning with shipments next month. Furthermore, the company announced it had begun firmware shipments for a new Intel PC chipset in material quantities, which may further boost revenue through 2001.
Management also indicated it is working on removable flash memory solutions to support applications for the emerging Bluetooth short-range wireless standard and third-generation (3G) wireless phones. SST is currently working with Qualcomm (NASDAQ: QCOM - news) and Samsung on chipset and handset solutions, respectively, for the cellular phone market, which only represents about 2% of total revenue to date. Nonetheless, we remain firm on our admittedly controversial downgrade of SST shares for now.
Remember, we first recommended SST on 3/10/99 for our April 1999 Special Situations Report newsletter at just $3.06 a share. SSR subscribers who invested in SST then have hauled in a whopping 2,643% return in the 17 months leading up to our downgrade on July 6, at $83.94 a share.
In addition, SST was recommended for this year's Magic25 portfolio back on November 9, 1999, at $23.75 a share - a 253% return in eight months. To put it simply, the risks just seem to outweigh the potential rewards to leave these kinds of profits on the table at this juncture.
biz.yahoo.com
In his July 5 call, Joseph cut the chip sector to neutral from outperform, pointing to higher inventories, softer prices and a spike in spending as possible signs of a top. In the note, he cut his ratings on Advanced Micro Devices, National Semiconductor, Silicon Storage Technology and Texas Instruments. (Of those companies, Solly has performed recent underwriting for Advanced Micro and Silicon Storage.)
thestreet.com
Numbers
Revs 23.0M to 35.1M to 48.3M to 62.3M to 103.2M Jun00 per daily stocks
EPS (0.07) to 0.02 to 0.21 to 0.34 to 0.71 Jun00 per briefing.com before 4 to 1 split
So last Q was 0.14 split adjusted. Next quarter is estimated by Zacks has 0.22 for next quarter, and 0.27 for Dec00. Interesting to see if this split affect brokeage’s computers for screening stocks.
52-Week Low on 24-Sep-1999 $4.021
Recent Price $24.875
52-Week High on 22-June-2000 $38.896
Market Capitalization $2.22B
Shares Outstanding 89.2M
Float 75.0M
Price/Book (mrq) 6.57
Price/Earnings (ttm) 58.67
Price/Sales (ttm) 8.59
Short Interest As of 10-July-2000
Shares Short 4.79M
Percent of Float 6.4%
Shares Short (Prior Month) 1.54M
Insiders
3 Buys and 12 sells in 2000
49% institutional up from 11% three quarters ago.
Internet posts
Silicon Storage: A Flash in the Pan? by Chris Connor
Silicon Storage {SSTI}, a flash memory maker, is definitely on a roll. Over the past year, SSTI has ascended over 300 percent as both revenues and earnings have been skyrocketing. Earnings have been soaring to such a degree that Silicon Storage has blown earnings estimates away in its last five quarters. Over those last five quarters, Silicon Storage beat estimates by 46.15 percent, 100 percent, 10.53 percent, 47.83 percent, and 73.17 percent (in order of occurrence). Silicon Storage appeared in a search that looks for mid-cap companies that offer substantial upside potential, entitled Mid-Cap Magic.
A Leader in an Explosive Industry
It would be difficult to find a technology in a better space than that currently occupied by flash memory. Flash memory can benefit from not only the dynamic growth of data storage, but also from the continued explosion of wireless devices. The rapidly burgeoning and proliferating devices such as digital cameras, MP3 players, notebook computers, PDAs, and Internet-enabled phones require flash memory cards to store data. These wireless devices use these cards because flash memory cards are small, removable, can hold many more times the data than a floppy disk can hold, and are able to retain data after the device is turned off. According to semiconductor market research firm IC Insight, flash memory will be an $18.3 billion industry by 2003 after seeing a global demand of $4.6 billion last year.
Silicon Storage stands out from other flash memory makers because of one very important characteristic: speed. Silicon Storage claims that its flash memory card is able to sustain a write speed (the speed of inputting data to the card) of 1.4 megabytes per second. SSTI's card is so fast largely because of its dual-port SRAM (static random-access memory) buffer. This buffer allows a user to write to the buffer while the buffer writes to the flash memory simultaneously. In addition to the dual-port buffer, Silicon Storage's card augments its market-leading speed by employing a direct channel from the buffer to the flash memory - thereby eliminating steps and enhancing performance. Flash memory speed is most crucial to digital cameras because flash memory determines the rate at which a digital camera can take consecutive shots.
Surprising Valuation
Normally, a leading company in a rapidly growing industry that posts the kind of growth numbers that Silicon Storage has been registering commands a rich premium for its stock price. However, that is not the case with Silicon Storage. As Silicon Storage's Financial Overview demonstrates, SSTI sports a PE ratio of only 48.46. While SSTI's PE is above the market's (S&P 500's) PE ratio of 33.54, its PE is still substantially lower than other rapidly growing storage companies such as Brocade {BRCD}, Network Appliance {NTAP}, Emulex {EMLX} and JNI {JNIC}. For example, analysts expect JNI and Silicon Storage will each grow their earnings at rates of 37.5 percent per year over the next five years, but JNI is valued considerably higher with an astronomical PE ratio of over 300. Furthermore, SSTI has a price-to-sales ratio of 7.1, while the S&P has a higher price-to-sales ratio of 8.68. It is not every day that a leader in a hot industry is priced below the market, based on sales.
Looking Forward
In the future, Silicon Storage has a largely-untapped opportunity in providing flash memory to the cell phone market. Despite working relationships with Qualcomm {QCOM} and Samsung, Silicon Storage derives only about 2 percent of its sales from the cell phone market. (Most of Silicon Storage's sales were derived from products such as digital cameras, MP3s, network routers, set-top boxes, computer peripherals, and pagers 8/20/00 on yahoo
An article in the Economist stated that SSTI is in a very good position to grow and dominate the flash memory market because it is focused on flash memory. It also a stated that the demand for flash memory will be intense worldwide for years to come. I see a spit a year for 5 years! Hold and Keep buying! We will all do well! 8/20/00 in yahoo
I see SNDK finally getting above $80 and if the market is really good, then I could see a move to the $100/to $110 area. That is not a new high, SSTI on the other hand, I believe could get to the mid $30 and possibly to $42/$45 or so, a new high. I am long both (CYMI as well). 8/20/00 on SI
Chart
Dipped below $18 during tech correction in July and risen to present level on weak volume. Tight 50/10/200 stack. $20 seems to be a good bottom looking at the one year chart.
Links
ssti.com
Summary
Yahoo thread is one big mess. CC on vcall is interesting as they are very focused on their strength. Price running like the sector cyclical. It is of course, but when the cycle ends is anyone’s guess. I like the niche that SSTI is pursuing in the low density sector. Company has penetrated all continents with sales to all major countries. I constantly listen to CC where shortage of flash memory exists. This recent rise is on weak volume so is a WATCH. Short term downside is a return to $20 and upside is a new high. Risk/reward is favorable. This moves with the SOX so rightly or wrongly, it will decline with it. Have to sleep on this one.
Jack |
