Gross Margin Kings - Memory Chip Manufacturers

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Includes: CY, IDTI, ISSI, MOSY, MU, RMBS, SFUN, SSTI, STAK, STEC, WDC
by: Robert Zenilman

Rob Zenilman submits: Within a specific sector, gross margins can differ dramatically, due to the different nature of their businesses. Among the memory chip manufacturers tracked here, gross margins ranged from 24.8% (NASDAQ:STEC) up to 85.7% (NASDAQ:RMBS). The companies that have drastically higher gross margin are what I like to call "gross margin kings".

What separates out the companies with the four highest gross margin rates is that they earn money by licensing out their technology. 88% of Rambus' revenue is from licensing, 100% for MoSys (NASDAQ:MOSY), 56% for Saifun Semiconductors (NYSE:SFUN), 100% for Virage Logic (VIRL) and 25% for Staktek Holdings (STAK).

Data in table version -- click on a ticker for opinion and analysis of the company:

Total Gross Gross
Quarter Revenue Profit Profit
Ticker Company Ending ($mm) ($mm) Margin (%)
CY Cypress Semiconductor 07/06/06 $265.24 $113.89
42.9%
IDTI Integrated Device Technology 07/02/06 $185.54 $84.24
45.4%
ISSI Integrated Silicon Solution 03/31/06 $53.25 $5.64
10.6%
MOSY MoSys 06/30/06 $2.34 $1.96
83.7%
MU Micron Technology 06/01/06 $1,312.30 $329.80
25.1%
RMBS Rambus 03/31/06 $47.25 $40.48
85.7%
RMTR Ramtron International 06/30/06 $10.25 $5.40
52.7%
SFUN Saifun Semiconductors 06/30/06 $17.38 $13.93
80.1%
SNDK Sandisk 07/02/06 $719.19 $289.01
40.2%
SSTI Silicon Storage Technology 06/30/06 $107.73 $27.37
25.4%
STAK Staktek Holdings 06/30/06 $14.42 $5.72
39.7%
STEC Simpletech 06/30/06 $79.52 $19.70
24.8%
Click to enlarge

However, having high gross margins is no guarantee of profitability. Of the four companies here with gross margins over 70% (and that derive most of their revenue from licensing) - only Rambus has a positive P/E of 62.84.