Pearlman's Picks

12/05/2003 12:00 am EST


Ken Pearlman

Director of Research, Firsthand Funds

Firsthand Funds gets its name from the fact that its managers bring "firsthand" experience to the process, as each member of the investment team has working experience in their respective specialties. Here, we bring you some current favorite long-term stock picks from Ken Pearlman, director of research.

What is your outlook for consumer electronics during Q4?

"As we enter the holiday shopping season, we're quite optimistic about the prospects for consumer electronics. The holiday season is historically the strongest time of the year for consumer electronics sales and we don't expect this year to be any different. Sales of consumer electronic products have been strong throughout 2003, and a recent report from the Consumer Electronics Association estimate that sales of consumer electronics products will reach nearly $100 billion this year.

What are some of the areas Firsthand is focused on?

"A big trend is the growing popularity of camera phones. Camera phones, once regarded as a novelty here in the US, are gaining traction among consumers. Inside each camera phone is a tiny CMOS (complementary metal-oxide semiconductor) sensor that enables an image to be captured through a lens and converted into digital data. OmniVision Technologies (OVTI NASDAQ) has developed a "camera on a chip" that is currently being used in several new cell phones. With over 480 million cell phones estimated to be sold this year, OmniVision is just beginning to scratch the surface of the potential addressable market for its camera chips. And, let's not forget about stand-alone digital cameras. Today, sales of digital cameras are outpacing those of traditional cameras, with lower price points for higher megapixel cameras driving sales higher.

How does flash memory play into the digital camera theme?

"Digital cameras utilize flash memory instead of traditional film to store pictures. Flash memory retains data even when the power is off and allows you to reuse it over and over, making it the ideal medium for digital cameras and other devices that require removable storage. Two of our holdings, SanDisk (SNDK NASDAQ) and Lexar Media (LEXR NASDAQ), have profited from the explosive growth in digital photography by supplying these removable flash memory cards.

What other products do you believe will be in demand from consumers?

"Believe it or not, we've seen modest growth in PC sales this year with remarkable year-over-year growth in notebook sales. Beyond the obvious beneficiaries of an uptick in PC sales, such as Dell (DELL NASDAQ), Microsoft (MSFT NASDAQ) and Intel (INTC NASDAQ), we believe some of the component suppliers offer better valuations today.

"After several tough years, disk-drive manufacturers have seen a resurgence in demand as a result of the current PC replacement cycle. Other new products such as DVD recorders and digital video recorders—which allow users to record TV programs and other content onto an internal hard drive—have also helped disk-drive companies such as Western Digital (WDC NYSE) and Maxtor (MXO NYSE), broaden their revenues outside of the PC market.

Isn't this also a good time for the video game industry?

"We think so. The video game industry traditionally realizes the bulk of its revenues and sales during the holiday season, and this year appears to be no different. With over half of the US households already owning at least one game console, we believe software will be the primary growth driver this year. With its diverse lineup of popular games, we believe industry leader Electronic Arts (ERTS NASDAQ) is well-positioned to profit from holiday sales. Smaller niche players like Take-Two Interactive Software (TTWO NASDAQ) could also do quite well."

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