Dataram: A Value in Tech

08/19/2005 12:00 am EST


Mark Mowrey

Senior Analyst, Al Frank Asset Management

While maintaining the value approach that has made the Al Frank Funds and The Prudent Speculator so successful, The TechValue Report, as it's name implies, focuses on the tech sector. Here, editor Mark Mowrey looks at Dataram, his latest Stock of the Month.

"Dataram (DRAM NASDAQ) has chosen to lift itself above the cutthroat lower-end memory competition, instead focusing on premium server and workstation memory markets. The firm does not manufacturer memory chips. Rather, it buys chips and builds them into 'boards' that are then sold to end users and other manufacturers.  Major server and workstation makers normally source their memory buys directly from major memory makers like Infineon, Micron, and Samsung. Since Dataram does not pretend to be able to compete with those memory folks on price, it competes in the aftermarket, focusing on niche memory board configurations.

"In the other half of its business, Dataram directly targets manufacturers within the defense, medical, server, storage, and telecom industries. Here, Silicon Graphics is the core customer, representing 36% of the company's revenue. While both businesses offer attractive long-term growth prospects, a major new win in OEM business would certainly add to the company's fortunes. Management often speaks of Dataram's great operating leverage, which means that incremental revenue gains will afford a greater benefit to the bottom line.

"Markets for memory products are generally rife with price-based competition and often display marked price volatility related to supply and demand imbalances. Dataram's pricing tends to follow what happens in the memory marketplace. The company has sought to deal with the troubles price instability creates through inventory management. That route is not always successful, but the company's growing history of profitability is testament to the strategy.

"Dataram has been returning cash to shareholders over the years by way of stock repurchases. Since 1996, it has repurchased about a third of shares outstanding. And when it reported latest-quarter results, they announced the initiation of a $0.05 quarterly dividend. Now yielding 3.1%, the stock trades at less than 12 times trailing earnings per share if one backs out the $1.07 in cash and equivalents on the balance sheet. Right now, the company does not see any drivers that might create explosive growth. But we'll take steady slow growth over no growth any time."

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