In my opinion, the most important event this week is the conference and exhibition for home electronics products in Las Vegas, which starts on Wednesday night. As happens every year, Microsoft chairman Bill Gates will deliver the opening address. Tension will rise as his speech approaches, because he usually takes advantage of the exhibition to launch Microsoft’s newest electronic products. “Expect the unexpected,” the analysts say, guessing that he will present Microsoft’s vision, including new products for “the future networked home.” If, despite what they may think, he presents the new Xbox2 games console, it will be a day of joy for M-Systems Flash Disk Pioneers (Nasdaq: FLSH), because one or more of its components are installed in the box.
At the exhibition, SanDisk Corp. (Nasdaq: SNDK) and M-Systems will announce a new DiskOnKey (DOK) platform, which M-Systems president and CEO Dov Moran describes as revolutionary. That doesn’t mean much before we see it, and understand exactly what it is, but I can only guess that the technology is unique for both companies. If all the other DOK players, and there are quite a few, want to keep in step with this new platform, they’ll have to pay royalties to SanDisk and M-Systems. SanDisk, at least, has proven since it was founded that it knows very well how to collect big royalties for its developments and patents.
2004 was a great year for sexy gadget shares, which kept cash registers ringing. It’s therefore reasonable to assume that investors will try to guess which of the new gadgets launched at the Las Vegas exhibition this week will be big hits during the year, because the shares of the companies that make those gadgets will benefit. There is much mention of Apple Computer’s (Nasdaq: AAPL) 200% return in 2005, but Apple isn’t the only one. RIM-Research in Motion (Nasdaq: RIMM), for example, which manufactures BlackBerry wireless devices, soared 147% in 2004, and only the loss of a patent rights court case two months ago prevented an even bigger gain for the share.
Another gadget share is palmOne (Nasdaq: PLMO), which I hold in my portfolio. The company produces the successful Treo series of handheld devices, which include a telephone and a camera. Its share zoomed 168% in 2004, although because of the time I chose to add it to my portfolio, it has yielded me a 15% loss so far. I had a substantial profit on the share before the company published its results for the preceding quarter in mid-December, but an unexpected lowering of guidance for its current quarter, which ends in February, brought the share down from a peak of $46 to the current price of $31.5 million.
The company claims that it will meet its guidance for all of 2004, despite the problem with the current quarter, which it attributes to a delay in authorization by the cellular companies for purchases by their subscribers of palmOne’s most advanced device the Treo 650. If palmOne eventually meets it original guidance for 2004 as a whole, the current share price will be among the cheapest for gadget shares, with a profit multiple of 16 and a sales multiple of 1.3 for the coming year. In contrast, RIM is traded at future multiples of 29 for profits and 13 for sales. The gap is due to differing growth rates, but it may not persist through the year. On Thursday, TheStreet.com website compared the newest smart phones made by RIM and palmOne, and wrote that the palmOne’s Treo 650 (which contains an M-Systems chip), was close to the ideal smart telephone device.
2004 was a great year for oil as a commodity, and also, of course, for oil shares. No other liquid is as important to the world as oil, but people have been talking for years about drinking water as a product that is increasingly hard to get. That is certainly true in places where terrible disasters have taken place, like those last week covering widespread areas in Asia. GE-General Electric (NYSE: GE) recently market drinking water treatment as a strategic target. Two months ago, GE announced the $1.1 billion cash acquisition of water treatment company Ionics (NYSE: ION). I’m adding a different water treatment company to my portfolio today, which has reported steady growth in sales and profits for the past four years. I’m referring to CUNO (Nasdaq: CUNO), which has a $1 billion market cap, and is expected to finish its fiscal year, which ends in October 2005, with a profit of $2.20 per share on sales of $420 million.
Published by Globes [online], Israel business news - www.globes.co.il - on January 4, 2005