First of all I must say I'm extremely dissapointed in the the earning results. Thought at least we beat by 10-15%.
But I'm still trying to understand how we didn't and if this was just one bad quarter or is the stellar growth some of us thought was coming nowhere in sight. Here's my understanding of it, I'd appreciate comments on this.
We have five revenue streams. 1) Camera cards a) Traditional b) Shoot & store. 2) USB drives 3) Handsets 4) Other knicknacks(Card readers, mp3 players, yes I include these here as Eli said this was a low margin product! That supprised me but that is what he said - so much for a bucket load of cash from them) 5) Royalties.
Now if we compare revenue last Q to this one (rounded figures and ignored small amounts) Q2 Q3 1.a 291M 283M-X 1.b Negligible Negligible 2. 100M* X 3. n/a 81M 4. Negligible Negligible 5. 42M 43M --------------------------------------------------------- Total 433M 407M
* I can't find this but I'm sure Eli said they made 100M from the USB drives last Q. (I could be wrong here) X: Eli didn't break this down this Q, just mentioned it was "very soft"
There's some interesting facts in these figures. 1.a is a declining dollar market no matter what way you look at it. Yeah we maybe pumping out those cards but the dollars just isn't coming back due to price cuts. Goes from 291 to 283 minus the USBs And what is X and why was it so soft? The same reason as the Camera cards or were people just not buying them this Q or did we loose market share? I guess we won't really know until LEXR & FLSH report. Either way its pants.
The only good thing I heard mention in the conf call was the handset's revenue and this is what's keeping me in the stock.
20% of the revenue was from 1million units or 10% of the earnings. ie. 1m units = 5.4M income or $5.4 a unit. Now the global handset market is huge ~630M units, say next year half of them have NAND capabilites. And we get 25% of them = 78M units @ 5.4 = $424M income from this alone. However, and this is a big however this assumes we can keep the unit income stable @ $5.4 So I guess the big question is can we break into the handset market and make it huge because as I see it from the recent Conf Call this is the *only* growth area we have that its maybe possible to make money in. The rest seem to be declining in monetry value. (or it was a slower quarter)
The big dissapointments were a) Reporting the mp3 unit a low margin product b) Soft USB sales - these should have been throught the roof c) Declining camera card revenues - from a huge market! d) Declining royalties next Q ~33M (this lags a quarter)
His plan is to continue to race ahead and be the low cost provider at the same time drop prices in any slow time to speed up the process. The MP3 players will help as we can always dump them at low prices to get rid of excess inventory. in the long run this will lead to higher gross margins ,royalties from more devices and flash spreading to new markets. While a Q might get hurt this way this is really the best way to get ahead . Eli never worried about a fucked up Q in case you have not noticed. By this time next year the story will be told as 30% of all new cell phones will have slots. And SNDK will be there and others may not be able to handle the pace as you will see.