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No Flash in the Pan

06/26/2007 12:00 am EST


John Buckingham

Editor, The Prudent Speculator

John Buckingham, in the Prudent Speculator Tech/Value Report, says Silicon Storage is a low-priced purveyor of flash memory technology that has some promising new products.

Silicon Storage Technology (NASDAQ: SSTI) [is] now back to just about where we purchased [it] in March of 2005 (it traded just under $4.00 Monday—Editor), and more than a few factors are lining up to support the stock as we head into the latter part of 2007.

Silicon Storage designs, manufactures and markets a range of nonvolatile memory solutions based on its proprietary SuperFlash technology, intended for high-volume applications in the digital consumer, networking, wireless communications and Internet computing markets.

SuperFlash is a type of NOR flash, ideal for the storage of smaller amounts of data, with a tendency to be less error-prone than its cousin, [the newer] NAND flash. NOR flash also [can] run code directly from the chip, making it well suited for the storage of operating systems for electronic devices, such as wireless phones.

[Both kinds of] producers, though, are having troubles dealing with overcapacity and tremendous pricing pressures. But the potential combination of the NOR businesses of Intel (NASDAQ: INTC) and STMicroelectronics (NYSE: STM) may add some sanity to the group. Plus, SSTI’s management has been working for some time on the development of technologies that can support non-commodity products.

In October of last year, SSTI launched a solid-state disk-drive solution, dubbed NANDrive, just in time for heightened chatter regarding NAND flash memory’s potential to replace magnetic storage media in certain high-mobility applications. A NAND primary storage drive could prove an ideal solution for “price is not an issue” mobile users, while smaller sizes could replace most hard drives in portable media devices. Eventually, NANDrives could make it into a broader list of mobile computing applications.

Plus, in March SSTI debuted its All-in-One Memory solution, which mixes the code-execution capabilities of NOR flash with the higher capacity and greater flexibility of DRAM and NAND memory technology.

SSTI is targeting the high-end home entertainment market with a wireless audio connectivity solution, dubbed MelodyWing. The product has the potential, at least, to provide a nicely profitable revenue stream with a few key audio equipment providers to sign on.

[Nonetheless], we’ll have to continue to be patient with SSTI as these new products take hold. For the full year, the company expects revenue between $410 million and $450 million, a range fully below the $452.1 million generated in 2006. And we’ve yet to read a 10-K from 2006 or a 10-Q from the first quarter of this year. The failure to file those reports puts the shares at risk of being delisted from the NASDAQ, and no update regarding compliance has been made public.

Still, management has been pretty forthcoming regarding quarterly performance, and the cash-rich balance sheet and the [price to trailing-12-months revenue of less than 1x] remain fine reasons to add the stock to tech portfolios needing an inexpensive play on memory and storage.

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