Memory Devices :: Just A Step Away From Being Top Of The World

Memory Devices( MDL ) has a relatively short history from 2001, however its achievements thus far is nothing short of amazing. From a small office in Dongguan to a company acquiring 100% of TwinMos Technology. I remember vaguely that MDL share price was lingering around its IPO price for some time. Too bad then, I did not gave it a second look.

MDL is principally engaged in the research and development of solid state memory, DRAM and Flash memory and is widely used in consumer electronics such as MP3 players and thumbdrives. The is also a secular trend that consumers are upgrading or fitting their devices with higher memory capacity with after purchases of digital devices like digital camera and handphones. As the pixel on digital cameras or handphone camera increase, the need for higher portable memory increases. There is also rumors that Microsoft is launching its own version of PSP. However, that is still pure speculation. Without doubt is the increase demand for portable memory like Flash.

MDL aims to be a No.2 market player in the solid state memory products industry which, in according to source from iSuppli and compiled by DigiTimes - April 2005, is dominated by only one strong player with revenue of US$2.45 billion in 2004. The next two larger players had revenue in the range of US$726 million to US$740 million in 2004.

MDL had publicly expressed that it will be actively looking for opportunities to expand its geographical reach and grow it revenue, organically as well as through merger and acquisition.

MDL entered into a share exchange agreement to acquire the entire issued share capital of TwinMOS for US$96.8 million by way of the issue of 375.2 million new MDL shares priced at 42 SGD-cents per share. The acquisition is intended to elevate MDL a few more rungs up the ladder in the multi-billion dollar global solid state memory market. The acquisition is expected to be completed in 3Q of 2006. For readers who are clueless about TWINMOS.

Microft is expected to launch its VISTA operating system next year in 2007 a delay from its proposed launch date. As yet, the system hardware requirements are yet to be confirmed. One thing certain would be that it would be memory intensive just like Looking glass from SUN. However, I saw some new laptops with the sticker, Vista ready. Judging from the specs, I observed that at least 512MB DDR2 memory is needed. I expect end users will be buying new computers then fitted with more main memory( DDR2) which could potentially boast the bottomline of MDL specially after the successful acquisition of TWINMOS. This is a demostration of the ambitious management. The acquisition of TWINMOS allows MDL to reap economies of scale and consistent supply of memory chips for its own manufacturing. Maybe the delay of the launch of Vista by Microsoft may work in favor of MDL. A concern would be overstocking of inventory by manufacturers would cause a drop in prices of DRAM prices. It is just a low possibility.

Wired.com

Higher Ram prices may affect Vista

Vista to use more memory?

Windows Vista makes case for 2 GB of system memory, says Samsung


MDL recently concluded an exciting tie up with POTEVIO(http://www.potevio.com/en_new/index.asp), China's biggest handset maker. The increasing need for higher storage in mobiles will help drive the demand for Flash memory. Flash is lighter and more hardy than HDD based memory storage. The outlook for MDL looks bright indeed. POTEVIO is an IT products manufacturer and distributor as well as a service provider in the telecommunication industry where it is involved in both fixed line and mobile communications. It is one of the top 100 enterprises in China’s IT industry and was ranked No. 1 amongst the top 100 Chinese Electronics & Information Enterprises in 2001 and 2002. In 2003, POTEVIA was ranked by the Ministry of Commerce of China as the 5th largest enterprise, both amongst the top 500 largest import and export enterprises and the top 200 largest export enterprises. This Chinese biggest mobile phone producer has four self-owned product brands (Capitel, Eastcom, Bird and POTEVIO), four joint venture product brands (Ericsson, Nokia, Panasonic and Motorola) and two co-brand products (POTEVIO Sanyo and POTEVIO Toshiba) in China. In 2003, it achieved a production and sales volume of over 50 million units of handsets.


In its 1Q06 results, MDL announced a 59% increase in turnover with a corresponding 53% increase in gross profits. This is within my expectations.However 2Q results should be lower as expected as contribution from DRAM is seasonally lower in the 2Q. You can similarly get this information from chip testers like UTAC.

Based on DCF,



Today's share price of 0.37 represents a 22.8% discount to its intrinsic value. However do note that, I was conservative in my calculations taking into account the cyclical nature of the industry it is in.

Cheers
Niversphere.

Moore's Law: An empirical observation by Gordon Moore, co-founder and chairman of Intel.


Observation: New generation memory chips was introduced every 3 years woth 4 times memory capacity as that of the previous one. Alternatively, number of transistors on the memory chip becomes 4 times every 3 years or double every 18 months.

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Please read the prospectus and perform your analysis before making any investment decision. The above does not constitute a recommendation to apply for this company. I will not be liable for any losses incurred by anyone who invests based solely on the above-mentioned information