Current Price: $6.08
Strengths:
-Recent technical strength - could be beginning of uptrend - largest positive volume day since October and gapped up
-Recovering economy so hopefully greater demand for DRAM as well.
-Not very leveraged - Balance sheet cash can easily cover debt
-High Accumulated Depreciation so fair value of PPE may be much higher
-Good earning power -Quarter ending 11/26/2010- about $8M net income (annualized of $32)even half annual NI for $16 million-- at a 10x multiple + a discounted book value of equity (especially for $100M of inventory)still leaves us w a valuation floor of $410M or $6.5 per share of SMOD.
-Potential Acquisition target? Fundamentally undervalued and I'm curious what fair value of its PPE and operations would be
Weaknesses:
-Weak medium term technicals - Strong 2009, Flat 2010, Declining DRAM prices could entail a decline in 2011
-Recent Q2 EBITDA guidance of $.06-.08 vs expected $.19
-Operating scale is much smaller relative to competitors so will be even more vulnerable from eroding margins
-3 major customers make for over half of sales (maybe research their financial position and creditworthiness)
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ReplyDeletehttp://blogs.barrons.com/techtraderdaily/2011/01/13/micron-rising-expectations-for-dram-relief/?mod=yahoobarrons
"Prices of DRAM chips appear to have reached a bottom,’’ said Sam Hsieh, a Taipei-based fund manager at Fuh Hwa Investment Trust Co., who helps oversee the equivalent of $7.8 billion. "Investors are more optimistic about the companies."
ReplyDeleteTokyo-based Elpida plans to raise prices of dynamic random access memory 10 percent as early as this month, the Nikkei reported today, without citing anyone. Elpida spokesman Hiroshi Tsuboi declined to comment on the report.
Rising Trend
Suwon-based Samsung rose 2.7 percent to 975,000 won as of 11:41 a.m. while Hynix climbed 3.7 percent. Nanya, Taiwan’s second-biggest DRAM maker, rose 2.1 percent and Powerchip advanced 2.8 percent.
Not all analysts see chip prices bottoming. Prices will probably tumble 45 percent this year because of oversupply, according to a Jan. 12 report by researcher ISuppli Corp.
“Whether or not one price hike signals a trend is open to question, but once prices start to rebound they tend to keep going up for an extended period,” said Keita Wakabayashi, a technology analyst at Mito Securities Co. “The consensus has been that chip prices would bottom out this quarter.”
Source: http://www.businessweek.com/news/2011-01-17/elpida-chipmakers-gain-on-report-of-price-increase.html
"Jan 21 (Reuters) - Wedbush Securities upgraded Smart Modular Technologies to "outperform," saying a recovering DRAM market and a surge in demand for flash drives will drive growth.
ReplyDeleteThe Newark, California-based memory chipmaker's shares were up as much as 11 percent at $6.26 on Nasdaq.
The brokerage said falling DRAM prices, which plagued the sector in the second-half of last year, are finally bottoming out, indicating that DRAM supply and demand fundamentals are coming into balance.
It, however, said uncertainties related to the pace of recovery in DRAM prices may see Smart Modular's stock trading at a discount to its peers.
The company's shares have lost a quarter of their value in the last three months.
Analysts at the brokerage see Smart Modular garnering meaningful revenue from its solid stage storage segment, after the company recently won major contracts with IBM and other Tier-1 OEM's.
Growing supplies of DRAM memory chips and a stalled demand growth had brought a quick end to the sector's boom earlier in 2010, and had pressured profits even at top memory chipmakers like Samsung Electronics , Hynix Semiconductor and Elpida Memory . (Reporting by Siddharth Cavale in Bangalore;)"
1/21/2011 "Wedbush upgraded SMART Modular Technologies (NASDAQ: SMOD) from Neutral to Outperform. PT increased from $7 to $8.
ReplyDeleteWedbush analyst says, "While the uncertainty of the depth in DRAM ASP declines and timing of the DRAM market recovery had kept us cautious, we remained constructive on SMART’s long-term diversification strategy into enterprise SSDs, specialty DRAM modules, and NAND flash memory cards in Brazil. We think with: (1) DRAM ASPs nearing a bottom, (2) DRAM supply/demand fundamentals improving, (3) investor expectations set for a trough in FQ2 (Feb) earnings and revenue, (4) the long-term diversification strategy on track, and (5) the recent pullback in share price, that the risk/reward to buy shares of SMART is now compelling." "
"Now Taiwan's largest memory chip maker is predicting that demand for memory components will hit an all-time high as Apple sucks inventories dry, leading to inevitable price hikes, according to PC World.
ReplyDeleteWith DRAM prices predicted to soar by anything up to 25 per cent in the second quarter of 2011, and with fears of a shortage starting to raise their heads as they did back in 2010, it's only a matter of time before Dell, HP and their ilk start passing the price rise on to the High Street."
Source: http://www.thinq.co.uk/2011/1/25/apple-dram-demand-set-push-pc-prices-higher/