Saifun: Does This Tree Have Roots?

Last week, Saifun Semiconductors Ltd. (Nasdaq:SFUN) published a report that the market didn’t like, even though the company’s results beat the analysts estimates. The problem was not so much with the financials as with the guidance that the company provided for the first quarter of 2007, in which it said it expected sales of $9.5-10.3 million, while the analysts were thinking along the lines of something like $11.86 million.

Saifun chairman and founder Boaz Eitan explained that the reason for the company’s failure to meet the forecasts was the decision by Infineon Technologies (NYSE: IFX) subsidiary Qimonda to discontinue its purchases of Saifun’s products, and since it previously purchased 57% of the company’s output, this created a real problem. As far as I can remember, Taiwanese company Macronix International (Nasdaq: MXICY) also decided to abandon the NROM technology and abandoned its business ties with Saifun. So it is therefore likely that Saifun’s performance for 2007 will not meet the analysts’ expectations, and judging on past experience in cases like these, the company’s latest guidance is also too optimistic.

Recently, I have heard experts on Main Street (not from analysts, who have all disappeared recently) claim that Saifun has quite a few problems that have nothing to do with the walkout by Infineon and Macronix. The duel between Boaz Eitan and M-Systems Flash Disk Pioneers founder Dov Moran was odd to put it mildly, and it alienated quite a few investors. Because I also hang around Migdal Ha’emek, I have learned, among other things, about the highly discouraging state of personal relations at this company. The departure of president and CEO Kobi Rozengarten, is rather odd. Why especially now?

Either way, what has happened at Saifun, aside from the disappointing forecasts and results, is that the experts set investors climbing a tall tree, only for the investors to discover later on that the tree has no roots. As we’re living in the world of super technologies, this kind of thing happens all the time (because we all dream).

So now it has happened again. Would it be worthwhile exploiting the falls and buying the stock? Not me. I feel that it would be best to wait and read some research by someone who understands the company’s activity before making one’s mind up. There are two problems here; one is finding someone who does understand, and secondly, the bigger the disappointment becomes, the more likely analysts are to stay away, which means there won’t be any research.

Published originally by Globes [online], Israel business news - www.globes.co.il
© Copyright of Globes Publisher Itonut (1983) Ltd. 2006. Republished on Seeking Alpha with full permission.