How come the rising tide didn't lift SanDisk?

Shlomi Cohen

Last week, several of the stocks, especially the small ones, which are held in my portfolio tracked by "Globes", rose significantly. I will try to present specific reasons why.

It does not appear that anything dramatic enough will occur over the next few days to prevent this September from going into the record books as the best September for the Dow Jones index since 1939.

Last week, several of the stocks, especially the small ones, which are held in my portfolio tracked by "Globes", rose significantly. While it's known that a rising tide lifts all boats, I will try to find a real reason for some of the rises, even if there was no official announcement from the company.

Mellanox Technologies Ltd. (Nasdaq:MLNX; TASE:MLNX) passed on Friday the $20 mark, which it left when it warned about the third quarter, about two months ago. The trigger for the rise was an analyst estimate that the company can be taken over by Oracle. In my opinion, the odds are low, because as an independent company it can go far.

Last week there was a notice from Oracle's conference, that two of its big growth engines in the hardware area, Exadata and Exalogic - for data storage and cloud computing, respectively - are based on Mellanox's InfiniBand processors. That report guaranteed strong future growth for Mellanox with Oracle, and a huge push for its technology with other large customers.

It's enough to glance at what happened to its Yokne'am neighbor, EZchip Semiconductor Ltd. (Nasdaq: EZCH; TASE:EZCH), to see what happens when giant companies are based on unique processors of small companies.

Another interesting connection between a small Israeli chip firm and a giant company was revealed on Friday: the one between Nova Measuring Instruments Ltd. (Nasdaq:NVMI; TASE:NVMI) and the largest semiconductor maker in the world, Taiwan Semiconductor Manufacturing Co (TSMC).

TSMC reported its list of orders, a total of $1.7 billion, which it gave to suppliers in the third quarter. Among them was Nova, which received in the beginning of July orders for measuring equipment worth $17 million.

The share responded on Friday with a rise of 9%, and now it is clear what CEO Gabi Seligsohn was relying on when he significantly raised his full-year guidance with the results in August.

Of course, some "boats" fell last week, and the most outstanding and frustrating of which was SanDisk Corporation (Nasdaq:SNDK).

After recovering nicely in the first two weeks of the month to return to a share price of nearly $40, last week the share fell, as the result of a suspicious combination of short sales, which rose 25% since the middle of the month, together with lowered analyst recommendations and forecasts.

Until recently, there were analysts who told investors that if they were hesitant to buy Apple due to its high valuation, they recommend buying SanDisk as a very cheap alternative, but with Apple's strategy of success.

That recommendation was definitely justified, since NAND flash chips, which SanDisk collects royalties on, and also sells them itself, have become the most expensive component of iPhones, iPads, and their clones, which are flooding the market these days. Beginning in mid-August, Apple and SanDisk went their separate ways on the stock market, with the former moving north, and the latter moving south, and the question remains why.

The separation began exactly on the day that SanDisk issued $1 billion in convertible debt. What happened this year with SanDisk calls to mind the year 2006. Then, too, the share collapsed from its peak, beginning on the day that it issued convertible debt worth $1 billion, with the same underwriters - Morgan Stanley and Goldman Sachs - and the freefall ended with the acquisition of msystems in the summer of that same year.

Independent analyst Mark Savolainen believes that this time as well, the weakness after the debt issue will end with a significant acquisition by the company, and in his opinion it will be a company in the SSD sector.

I, on the other hand, believe that you need to look at the whole dramatic SanDisk picture of this year, which includes the resignation of founder and CEO Dr. Eli Harari, precisely at het cusp of a promising decade for the sector, the signing of a new contract with Toshiba, which includes an intricate defense against buying SanDisk, the signing Harari as a consultant with a bonus if the company is sold, and the appointment of a new chairman, Michael Marks, who is an expert in the field of private funds and privatizing companies.

With Bloomberg news agency learning that hard disk drive maker Seagate Technology tried unsuccessfully to be sold to private investment funds, it seems clear now that all these signs coming from SanDisk this year seem to hint toward its sale, sooner or later, to private funds.

Published by Globes [online], Israel business news - - on September 28, 2010

© Copyright of Globes Publisher Itonut (1983) Ltd. 2010

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