Quick and dirty

Here is the basic breakdown on today - I am just isolating to one stock/sector. Sandisk got absolutely trashed today down about 15% on HUGE volume. My first suspicion is that the market is overreacting here. Still I think the stock can retrace maybe as far down as 35 or lower on this news. This has been exactly the type of news re: increasing competition and margins pressure that has been killing the stock over the past few years. I don't think the analysis re: Micron and Intel entering mass NAND flash production gives enough credit to Sandisk's intellectual property portfolio and the substantial royalties they have already been extracting from the semi-industry already - re: close to $60M per quarter.

The following is my recent post to bill cara's blog. He had several great posts today on Sandisk and I don't want - nor do I have time to duplicate any more. So here is the link again to his website: www.billcara.com - and my specific comment - highlighting what I think the principal issue is:

"Great post again. Most important point for me in your post was: "Could this be a Coke/Pepsi war in the making – the one where brokers can take the stock to the moon?."

If you have tracked Sandisk CEO's comments over past several years this has been exactly his point. He doesn't care if Sandisk's margins fall on the older products - he is just trying to grow an $X billion dollar yearly market into a $XXX billion dollar market. Then Sandisk can license its technology and enforce its patents against each producer while remaining a marginal producer itself. Of course the reason that it may maintain a multiple of 20-30 is that royalty based revenue.

Now with the promise of BOTH mobile phone market and Ipod market the flash memory sector outlook has been quite bullish. The following quote is what I saw replayed over and over again earlier today: "This venture is probably going to be a substantial threat to SanDisk," said Oppenheimer & Co. analyst Vijay Rakesh, who recently initiated coverage on the stock with a "Neutral" rating. "Intel and Micron don't have to pay royalties to SanDisk -- and right now SanDisk makes about 15 percent of its revenues, or 40 percent of its operating profit, from royalties. Plus Intel and Micron can increase memory supply and put pricing pressure on SanDisk."

The last sentence regarding Intel and Micron - "not having to pay royalties" is one reason I think the stock was down 15% today instead of 5%. Bill's article alluded to this as did TheStreet.com article. For me though this is exactly the crux of the issue - as Intel and Micron just validate what a hot market this really is - now can Sandisk retain and enforce its IP portfolio? So far so good.....

Its getting close to $60M a quarter royalty revenue. This is up near 50% from last year. If market continues to grow and IP portfolio is honored we could be talking $100M a quarter not too far out - then we can make the Qualcomm type comparisons for a minute at least and see what kind of multiple gets awarded. Then we see $100-200 stock price.

Question is in the meantime - who is right regarding the IP portfolio. And more importantly -is the Oppenheimer analyst - a) on top of things, b) a moron, c) rigging the game to bring the stock in to pick up shares, or d) misquoted. I have no clue and I have not read his research report so no further analysis.

Best regards and I apologize for any repetition.

-BG"

Have a great night!
-Ben