Saifun Semiconductors (SFUN)

[midastouch017]

William Blair rates Saifun "Outperform"

Deutsche Bank: Saifun's technology still faces key challenges.

Globes corespondent 20 Dec 05 17:33

Analysts are continuing to test the water at Nasdaq newcomer Saifun Semiconductors Ltd. (Nasdaq:SFUN). Today, William Blair and Deutsche Bank join Lehman Brothers analysts Time Luke and Nadeed Janmohamed, who gave Saifun an "Equal weight" rating.
William Blair analysts Jeff Rosenberg, Jim Karlis, and Michael Bartlett rate Saifun "Outperform", while for Deutsche Bank, Pranay Laharia and Ben Lynch go for a "Hold" rating. William Blair's earnings estimates are $1.16 for 2005 and $1.04 for 2006. Deutsche Bank has $0.98 for 2005 and $1.61 for 2006.

"Saifun’s nitride read-only memory (NROM) technology, which offers a proprietary method to store two bits of data in a memory cell, has the potential to significantly alter the competitive landscape of the nonvolatile memory (mostly flash) semiconductor market. Management expects to leverage NROM’s advantages to penetrate 20%of the market by 2009," William Blair's report says

"Flash memory is the fastest-growing major segment of semiconductors. Already an $18 billion market, flash is expected to grow at least 25% per year and therefore, more than double by 2009. Saifun derives all its revenue from this market.

"The company, in our opinion, has a very attractive financial model. We forecast gross and operating margins of at least 75% and 45% respectively in 2006. Unlike chip or product manufacturers that are more subject to the cyclical forces in the flash memory market, the vast majority of Saifun’s earnings derive from license and royalty payments.

"We expect 2006 to be an important transition year for the company. The flash memory market has two major segments: NOR and NAND. Saifun initially achieved greater penetration of the technically more complex, but slower-growing, NOR segment. Efforts to replicate that success in the NAND market, which we believe largely hinges on the successful introduction of the company’s 4-bit per cell technology, are a key priority for 2006.

"Separately, a portion of the company’s revenue base will transition during the year from license payments to royalties. Our estimates reflect some negative effects from the timing of this shift, which we expect to temporarily pressure margins and dampen sales growth," the William Blair report concludes.

The Deutsche Bank report is more cautious about Saifun's technology, saying, "While the upside potential of NROM is high, we believe that the technology still faces key challenges, and that the current valuation reflects a balanced risk-reward."

Laharia and Lynch set a $26 12-month price target for Saifun, which compares with a current share price of $28 that gives the company a $775 million market cap.

Meanwhile, CIBC World Markets has com out with a "Sector Outperform" rating for Saifun.

Published by Globes [online], Israel business news - www.globes.co.il - on December 20, 2005


http://www.globes.co.il/serveen/globes/docview.asp?did=1000041825&fid=942

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