After three straight weeks of declines, the four main indices managed to end a week on a rise, led by the Nasdaq and the Russell 2000, which rose by over 2%. We blamed Europe for the declines, but there was nothing in particular to account for the rises of last week.
Perhaps the fact that we are approaching the second half of the year is the trigger. Without going back a very long way, I can't remember a year like 2012 in which almost every technology company claims that its second half year will be much stronger than the first.
Among the companies I hold in my portfolio here, the outstanding one for "a strong second half" in its sales line is Orbotech Ltd. (Nasdaq: ORBK). The company expects sales of $300 million in the last two quarters combined, compared with just $200 million in the first two.
When it comes to the profit line, SanDisk Corporation (Nasdaq:SNDK) is the most prominent. According to Merrill Lynch, whose analysts are the most optimistic about the company, SanDisk will post earnings per share of $1.04 for the first half, but will double that in the second to $2.01.
An extraordinary year
2012 is unusual for the second-half syndrome in the technology sector. The reason for that is several big launches that happen to fall in the summer and autumn, and will therefore have a material effect on the results of most technology companies, beyond the usual seasonal cycle.
Tomorrow, Samsung's European customers will receive the smartphone that has become a huge hit even before reaching the market, the Galaxy 3. Apple's (AAPL) reply, the iPhone 5, which is supposed to be the mother of all its telephone launches, will land in September-October.
In between, Apple will launch its new generation of thin laptops next month; and OEM customers of Microsoft (MSFT) and Intel (INTC) will shortly launch the first Ultrabook computers using the Windows 8 operating system and the new Ivy Bridge family of processors.
The Apple computers will be launched at its developers event on June 11, and the first rival Ultrabooks will be revealed next week, at the annual Computex expo in Taiwan.
How do these launches link directly or indirectly to some of the companies I hold here? For example, there is a good chance that it will emerge this week through the teardown websites that the cellular communications processor in the Galaxy 3 is from Samsung itself, and not from Qualcomm (QCOM). If that is correct, it promises upside for Ceva Inc. (Nasdaq:CEVA); LSE:CVA) in the coming quarters, because it sells a DSP license to Samsung, and will therefore be entitled to a few cents in royalties on every Galaxy 3 sold.
The substantial upside seen in Orbotech is indirectly connected to all these launches. Orbotech supplies inspection solutions for the touch screens in the smartphones, tablets, and laptops that will shortly be launched, the latter being equipped with such screens for the first time. Its inspection and production solutions for printed circuits are leaders at all the subcontractors of Apple and the others in the East, and it recently reported a substantial revival of interest in advance of the aforementioned launches.
Samsung prefers SanDisk
As far as SanDisk is concerned, although it is a competitor of Samsung in chipsets, it turns out that Samsung's telephone division sometimes prefers SanDisk's NAND solutions to the in-house ones. Thus it was with the LTE model of the Galaxy Nexus launched in late 2011, which contained the SanDisk SDIN5C2-32G NAND Flash memory module. If that also happens with the Galaxy 3 models, there will presumably be upside in SanDisk, which reached annual low of $31 this month.
Even if that doesn't happen, investors should be reminded that SanDisk receives royalties on every chip that Samsung produces, whether for use in its own devices or whether it sells them to Apple, so that, in any event, SanDisk will see substantial upside in royalties late in the year, because of the dizzying success predicted for the Galaxy 3 and iPhone 5. At present, Merrill Lynch projects royalties of $416 million for the year as a whole, compared with $375 million in 2011, mostly from Samsung.
In addition to the royalties, there is no doubt that sales of SanDisk's SSD solutions will pick up momentum in the second half-year, because of the many launches of thin computers, whether by Apple, or of Ultrabooks from other companies. Some of the Ultrabooks that will shortly reach the market will have "side-by-side" storage solutions being pushed by Intel, among other things in collaboration with SanDisk. These are HDD drives working alongside SSD, which results in a substantial saving of battery time, shortens boot-up to a matter of seconds, and allows a much higher storage capacity than solutions that rely on SSD only.
Published by Globes [online], Israel business news - www.globes-online.com - on May 28, 2012
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