FWIW, below is an email exchange a friend and I had on SGTL yesterday. Start at the bottom and read up if interested. I think I removed all the salty language. 8^)
_________
Who is Asustek? I bet they supply the hardware for the ipods.
Anyway, all of your points are well taken (though I don’t think any issues with CREAF are indicative of the MP3 market at large- instead I think they are probably company specific. The first mp3 player I bought was a Creative Nomad Jukebox. There weren’t any ipods at the time. Creative was the go-to company for music players and that time has passed. Creative’s problems are a function of aapl eating their lunch, IMO).
Nevertheless, it seems the inventory issue is of sufficient concern to make people avoid buying the stock, and to encourage people to sell.
Let’s say all of the concern is justified and that the CEO/company is deluded in thinking that they will achieve or even beat their numbers. Right now they are projected to earn $2.30 in 2005. Their growth rate this year is around 65%. But let’s say that’s bullshit and they’ll really only grow at 25%. Their projected growth rate for the next five years (which I know is a crapshoot) is around 23%. That would seem to comfortably project to a PE of about 25. Now, let’s take their earnings and cut them in half (which would mean that they would only earn .47 in the remaining 3 quarters since they already earned $.67 in the first Q. The estimate for next quarter alone is $.54, so they’d have to miss that badly and then probably have losses in one quarter, which seems irrational to me, but let’s go with it)- so instead of $2.30 they make $1.15. At a 25 PE that gives us $28.75/share. At $23/share the company is sporting a 20 PE on ½ of what they project to earn. That seems to bake in a tremendous amount of speculative bad news.
If you were short, how would you argue against this logic? That the earnings numbers are Pro-forma and not GAAP? That the mp3 and portable device market are a fad or are already fully developed? That Sigmatel will be marginalized by other players?
Really, at these levels what is the logic to being short this stock? Or to just not being long?
-----Original Message-----
From: Scott
Sent: Thursday, May 26, 2005 3:54 PM
To: Mark
Subject: RE: I hate SGTL
One more thing from the 10Q:
“Our sales cycles can take up to 12 months to complete and volume production of products that use our ICs can take an additional 3 to 6 months to be achieved, if at all. The lengthy sales cycles of our products make forecasting the volume and timing of orders difficult. In addition, the delays inherent in lengthy sales cycles increase the risk that customers may seek to cancel or modify their orders. Our sales are made by purchase orders. Because industry practice allows customers to reschedule or cancel orders on relatively short notice, and order lead times can vary period to period, backlog is not a good indicator of our future sales. Cancellations of customer orders or changes in product specifications could result in the loss of anticipated sales without allowing us sufficient time to reduce our inventory and operating expenses.”
That’s the real risk: that companies, e.g. Creative, will flat out drop their orders because they can’t even sell what they have and SGTL gets stuck with the inventory. The repricing of the stock is all about this.
--------------------------------------------------------------------------------
From: Scott
Sent: Thursday, May 26, 2005 3:51 PM
To: Mark
Subject: RE: I hate SGTL
BTW, their cell phone designs, if they ever actually get any wins there, will not add any revenues until probably 2007. Unfortunately, this is an mp3 company, with some from the laptop market, and it will rise and fall (mostly fall) on the mp3 news. From their 10Q:
A few customers account for a substantial portion of our sales. The following table sets forth our customers that represented 10% or more of our revenues for the periods indicated:
Three Months Ended
March 31,
-----------------------
2005 2004
-------- --------
ASUSTEK Computer Inc. 27.1 % *
Creative Technology(1) 20.1 % 10.2 %
G.M.I. Technology 13.8 % 18.1 %
Holystone Enterprise * 25.5 %
SGTL is linked to Creative. And Creative is in fucking free fall because the Zen product line ain’t selling and that means inventory glut and that in turn means lower margins for SGTL. That’s the problem. The only question is whether there is a solution or whether the present price adequately reflects the problem. The stock is trading like the problem is bigger than the company is letting on. It’s been my experience that CEO’s lie about this shit, simply out of denial. They deny the problem exists and then when they own up, they cut earnings in half, not a little, in half.
--------------------------------------------------------------------------------
From: Mark
Sent: Thursday, May 26, 2005 1:45 PM
To: Scott
Subject: RE: I hate SGTL
Unreal actually. It’s now red. RED! Such a weak stock right now. I just can’t believe it.
-----Original Message-----
From: Scott
Sent: Thursday, May 26, 2005 1:36 PM
To: Mark
Subject: RE: I hate SGTL
Today’s action is just heart breaking.
--------------------------------------------------------------------------------
From: Mark
Sent: Thursday, May 26, 2005 12:30 PM
To: Scott
Subject: RE: I hate SGTL
I don’t think CREAF is their ‘main customer’, I think AAPL is, but I can’t find anything to quantify that.
Nevertheless, the market has been keeping the lid on this thing because of these inventory concerns. A lot of concern has already been priced into the stock, but it could certainly go down further, and frankly looks as if it will.
I disagree that MP3 players are a fad market and I think portable devices of all kinds are a big growth area. People will upgrade their mp3 players and other devices as new stuff is developed. SGTL concentrates on the portable market and is expanding their product offerings. That doesn’t mean they will succeed but their adoption by the MP3 market seems to imply that they know how to make chips that work well in portable devices and power management in those devices.
This PR from yesterday is evidence of this. Wouldn’t it be great to have an Ipod where you could just quickly beam songs from one person’s ipod to another? I think it would be fantastic and I would be among the first in line to get one. Or say I have a digital camera and take a picture- I could beam the picture(s) to an ipod photo device. There are a million applications for this kind of thing don’t you think?
AUSTIN, Texas--(Business Wire)--May 24, 2005--
SigmaTel, Inc. (NASDAQ:SGTL.Q), a leader in
analog-intensive mixed-signal integrated circuits, announces the
availability of the STIR4230 Very Fast Infrared (VFIR) companion chip
providing 16 million bit per second wireless communication to
SigmaTel-based portable MP3 player designs and other portable device
and embedded applications. With initial applications targeted for
implementation within SigmaTel STMP35xx MP3 player solutions, the
STIR4230 will also be available for non-music applications including
cell phones, digital still cameras, in-store kiosks and printers.
"SigmaTel is continuing to build upon its core technologies to
bring to market products that will provide portable applications with
wireless transfer methods for large files such as digital music and
photos," says Phil Pompa, vice president of the Integrated Products
Group at SigmaTel. "This latest offering expands the company's range
and allows our customers to easily implement wireless, secure
functionality within their devices."
"The STIR4230 differs from previous SigmaTel IrDA devices in that
it is designed for use in portable and other embedded applications and
not only as a PC peripheral," Pompa says. "The product, with VFIR
speeds, is the ideal method of transferring digital music and photos
between portable devices."
As one of the fastest wireless transfer methods, VFIR can transfer
a single 3 Mbyte file in approximately 2 seconds or 100 Mbytes of
information in under 1.5 minutes. As a point-to-point communications
method, it is one of the most secure wireless technologies and is
virtually immune to wireless hacking common with RF wireless
technologies. Through SigmaTel's integration and design expertise, the
VFIR implementation with the STIR4230 enables both low power
consumption and a lower design cost and is offered in a design
solution that is quickly and easily implemented within a variety of
applications.
Ron Brown, ExecutiveDirector of the Infrared Data Association
states, "as the market leader for portable digital audio players,
SigmaTel's new companion infrared solution will enable large file
transfers at very fast speeds. The IrDA brought the Very Fast Infrared
(VFIR) standards into the marketplace for applications just like
this."
The STIR4230 provides IrDA (Infrared Data Association) compatible
protocol processing for all IrDA data rates from SIR (Serial Infrared)
to VFIR including MIR (Medium Infrared) and FIR (Fast Infrared). The
STIR4230 interfaces to the host process via a simple Serial Peripheral
Interconnect (SPI). The 4mm by 4mm QFN package and low power
consumption make the STIR4230 an attractive part for mobile
applications. The STIR4231 is a pin compatible part that supports IrDA
rates up to FIR (4 million bits per second).
A demonstration of device-to-device VFIR implementation as well as
new customer MP3 products offering this feature will be showcased at
the Computex Tradeshow in Taipei, Taiwan, May 31-June 4. Please
contact SigmaTel Sales at sales@sigmatel.com if you wish to schedule a
meeting at this event.
The STIR4230 is currently sampling and is available for $5.95 in
quantities of 1k including IrDA protocol software running on STMP35xx
MP3 decoders.
For more information on SigmaTel solutions, please visit
www.sigmatel.com.
-----Original Message-----
From: Scott
Sent: Thursday, May 26, 2005 11:49 AM
To: Mark
Subject: RE: I hate SGTL
I put in an order and didn’t get filled. I want out but I don’t want to take a loss if I don’t have to. I’m hoping, “HOPING”, to get filled at $24.01, which is what I paid. Maybe two years from now I’ll look back and regret not sticking with it but I look at CREAF, their main customer, and I think SGTL is in trouble. They are pretty much a one product company at this point and CREAF is choking on inventory. I think their gross margins will be under huge pressure and I think their numbers for 2005/6 will come down.
--------------------------------------------------------------------------------
From: Mark
Sent: Thursday, May 26, 2005 11:12 AM
To: Scott
Subject: RE: I hate SGTL
I thought you sold out of it all early yesterday?
-----Original Message-----
From: Scott
Sent: Thursday, May 26, 2005 11:07 AM
To: Mark
Subject: I hate SGTL
I’m starting a new Yhoo club. Want to join?
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