Seeing Through Low Visibility of Samsung and SanDisk

Includes: KDDIF, MU, ORCT, WDC
by: Shlomi Cohen

If January really does signal the direction of the stock market for the remainder of the year, then it appears doubtful the bulls will return this year except perhaps in China, where this week's New Year celebration brought in the year of the bull. That may explain the Shanghai Stock Exchange's 9% positive return this year.

Across the rest of the world, however, markets have been mostly down in January. In the U.S., Nasdaq is down about 6.3%, the S&P 500 Index is down 7.9%, and the Russell 2000 is down 11%.

SanDisk Corporation (Nasdaq:SNDK), intentionally or not, waited until after Samsung's results were published, on Friday, to announce the date of its earnings release Monday, after the close of trading.

Surprisingly, in contrast to the major indices, SanDisk is up in January, rising 22% as its share succeeds in holding up nicely even in extremely stormy times, despite the fact that no one expects the company to avoid reporting heavy losses and issuing pessimistic guidance - if it provides any guidance at all.

With the second major player in the flash memory sector, Micron Technology (NYSE: MU), rising a sharp 34% in January, I expect that the gains for both companies are connected primarily to a recent improvement in chip prices, in addition to expectations of a significant reduction in the production capabilities of manufacturers in the sector. A large cut in investments will bring a further significant improvement in the price of flash chips in the second half of 2009, even if until then there will not be any increase in demand.

The leader of the massive reductions in investments is Samsung, the company with the largest market share, 40%, which on Friday reported its first loss since 2000. Sales of Samsung chips of all types fell 18% in the fourth quarter, compared with the third quarter.

Samsung also refrained from issuing guidance for the full year of 2009. The excuse of the recession clouding visibility is a natural reason, but it should be remembered that this August it should be signing a new royalty agreement with SanDisk. As part of the apparent negotiations taking place between the two companies, it may prefer to keep as many business figures as possible under wraps, including its investment budget, which it did not publicize.

For the exact same reason, I expect that SanDisk CEO Dr. Eli Harari will also skip guidance for 2009, which would include royalties in the period after the expiration of the current contract.

KDDI is big in Japan but what about Orckit?

Among the more interesting results posted this past Friday, I note Japan's second largest telecommunications company, KDDI (OTCPK:KDDIF), which is also one of the three main customers of Orckit Communications Ltd. (Nasdaq: ORCT) for the upcoming year, which will be discussed by Orckit's managers when it releases its results next Tuesday.

KDDI reported a 19% gain in operating profit. Despite the recession, KDDI continues its big investment plans, as it reported at the beginning of its fiscal year. The plans include expanding its range of mobile and landline services, setting up a new WiMAX network, and beginning to invest in a 4G LTE network. From Orckit's point of view, it appears at first glance that it will receive significant orders over the course of the year, and we have to wait and hear what Orckit's management has to say about it next week.

Disclosure: None

Published originally by Globes [online], Israel business news -

© Copyright of Globes Publisher Itonut (1983) Ltd. 2006. Republished on Seeking Alpha with full permission.