Canadian company RIM-Research in Motion (Nasdaq: RIMM) will publish its results this Wednesday after trading. RIM markets the popular BlackBerry and has a market cap of $15 billion, ten times its 2004 sales. palmOne (Nasdaq: PLMO), which markets the Treo family of products, will publish its results the next day. palmOne very much wants to be RIM, but still has a long way to go. Its market cap is exactly one tenth of RIM’s, although palmOne’s sales are only 25% less than RIM’s.
Investors like RIM’s high growth rate and profits. RIM’s expected profit per share in the quarter ending in May is $0.55, compared with $0.36 in the corresponding quarter last year. This is almost double palmOne’s $0.31 per share profit, the same as in the corresponding quarter in 2004, which accounts for the huge gap in market caps. On the other hand, this is where the huge potential of the palmOne share, which I have in my portfolio, lies, should its profit, growth rate, and guidance for the future prove a pleasant surprise this time, in contrast to previous quarters. There is also an Israeli connection here the Treo product family contains chips manufactured by M-Systems Flash Disk Pioneers (Nasdaq: FLSH), which, to the best of my knowledge, are not present in BlackBerry devices.
The M-Systems share has fallen back to $20. I reiterate that, in my opinion, with all due caution, the company will not issue a profit warning. I can cite many other reasons for the drop in the share: the precipitous decline in the Israeli market and selling by mutual funds, weakness on Nasdaq in recent days, and repeated remarks by Smith Barney analyst Craig Ellis about weak sales of memory cards in retail chains (M-Systems’s products aren’t sold there, but Ellis thinks they are) and lower prices for NAND chips (which is true, but Ellis is wrong about its effect on M-Systems).
In addition, investors are concerned again that M-Systems is about to do something with its large cash reserves, and some have decided to sell the share before that happens. They fear that M-Systems may do something like invest in a chip plant and/or acquire supplementary companies or technologies. Whatever the truth may be, publication of the company’s results and guidance in two or three weeks will clarify it. Incidentally, short players have no part this time in the drop in the M-Systems share. As of last Friday’s report, the most recent one, short positions in M-Systems were down for the third straight month, hitting 1.5 million shares. Believers in M-Systems include Suny Electronics (TASE: SUNY), which imports Samsung cellular telephones to Israel. Suny published its securities portfolio yesterday, which included a $2 million investment in M-Systems’ bond issue. In my opinion, Samsung is the biggest customer for M-Systems’ mobile DiskOnChip (MDOC).
It was reported in Japan yesterday during chairman Bill Gates’s visit that Microsoft (Nasdaq: MSFT) and Toshiba (TSE: 6502; LSE: TOS; XETRA, AEX, Paris: TSBA) were cooperating on consumer electrical devices and components for those devices. In my opinion, M-Systems, as a partner of both of these companies in many projects, both widely known and unknown, can only benefit from yesterday’s announcement. “Barron’s” weekly yesterday confirmed what Gates said several weeks ago that he doesn’t believe that the hysteria about Apple Computer’s (Nasdaq: AAPL) iPod media player will last long, because the future of these players lies their inclusion in smart telephones. This is probably one of the things discussed yesterday by Microsoft and Toshiba. It is also M-Systems’ direction in MDOC chips, with their large storage capacity, which only Toshiba is manufacturing.
Investment guru Peter Lynch always urges investors to personally check out products and the pace of sales by companies in which they invest, or are about to invest. I was in the Netherlands last week. I went into many stores that sold digital cameras, and was stunned to see that every store packed a smart memory card manufactured by only one company - SanDisk Corp. (Nasdaq: SNDK) - together with every new digital camera.
As far as I could see, Lexar Media (Nasdaq: LEXR) is non-existent in the Netherlands, and M-Systems has no presence in that market. I noticed that many customers were buying a one-gigabyte memory card costing over €100 with the fancier cameras. The camera itself cost about €400. Ellis says that SanDisk’s sales are weak. According to what I saw in Europe, the opposite is true, and what I saw was only the cameras market, which is considered saturated, with slow growth. I assume that SanDisk’s other sectors, such as memory cards for wireless telephones and universal serial bus (USB), are even stronger.
Concern about a profit warning will increase this week, with the peak coming on Tuesday next week, immediately following the US Independence Day on July 4. Meanwhile, the updated numbers of short players in most companies considered candidates for issuing profit warnings do not hint at any profit warnings, except for one company Mercury Interactive Corporation (Nasdaq: MERQ). As of mid-June, short positions in Mercury had risen 40% to 9.6 million shares, the highest level since October 2004. The short players were wrong on that occasion, and lost money. It will be interesting what will happen this time. The balance of short positions was down 22% in Radware (Nasdaq: RDWR; TASE: RDWR) and 12% in Check Point (Nasdaq: CHKP). The level of short positions in Orckit Communications (Nasdaq: ORCT; TASE: ORCT), in which short players recently got burned, was down 6%.
Published by Globes [online] - www.globes.co.il - on June 28, 2005