SimpleTech Inc. (STEC), a manufacturer of memory chips, increased its fourth-quarter earnings outlook. News sent shares sailing upward over 7 percent in pre-market trading. The company said its consumer and OEM divisions are performing more strongly than expected. SimpleTech reported earnings of around 18 cents per share, on sales of over $10 million, in the fourth quarter. Earlier guidance pinned earnings at around 16 cents per share on sales of around $95 million. Analysts average estimates agreed with the earlier guidance supplied by the company.
One of the major players in the memory chip industry, SanDisk (SNDK), abandoned its storage drive program nearly two years ago. Through its earnings, SimpleTech has proven strong market growth for the storage drive product still exists.
The storage drives use flash memory chips, a device typically used in consumer gadgets, to replace a portion of some hard drives. Early on, analysts and skeptics questioned if the application of flash memory could work. Manouch Moshayedi, the CEO and co-founder of the company said, “We stuck it out and it’s finally come to fruition.”
Loss of a Major Competitor:
With the loss of SanDisk as a competitor, SimpleTech is the only major company currently working in this field. Analysts believe its market could double a several times in the next several years. The market, as it currently stands, remains too small to interest SanDisk. Additionally, analysts believe competitors would need 18 months to two years to catch up.
The pricing of the flash memory chips has fallen around 40% every year for the past several years. This newly lowered pricing has positively affected the competitiveness of SimpleTech’s products.
SimpleTech has developed a technique that can get more out of existing flash drives. Traditional flash drives for data storage can handle 5,000 to around 100,000 read-write cycles. This level of operability can support an iPod, but not a computer’s hard drive. SimpleTech’s devices handle approximately 1 million read-write cycles.
Because of the lack of moving parts, as in traditional hard drives, the company believes their products will prove to be more durable than traditional hard drives. For this reason, the U.S. Military, one of SimpleTech’s customers, is especially interested in the technology.
Company Profile
SimpleTech, Inc. designs, develops, manufactures, and markets memory and storage products used in consumer electronics, computing, defense and aerospace systems, networking and communications, and other OEM applications. The company makes an assortment of flash, DRAM, miniSD (used in cameras, phones and PDAs), PC cards, and other related products. SimpleTech, Inc. changed its name from Simple Technology, Inc. in 2001. The company was incorporated in 1990 and is headquartered in Santa Ana, California.
Competitors
Competitors for STEC include: Micron Technology Inc. (MU), Kingston Technology Company, Inc. (private), and PNY Technologies, Inc. (private).
A Potential Trade
With SimpleTech’s current competitive advantage in its market segment we will consider a neutral-to-bullish strategy, the covered calls stock options position, for the company. Below is a potential covered call trade for a January call option with a $10.00 strike price.
| SimpleTech Inc. (STEC) $ 11.15 (37 days to expiration) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| OPTION | Expiration /Strike |
Opt. Bid |
%Dnsd. Prot |
%If Unch. |
%If Asgnd |
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| SQRAB | 07 JAN 10.0 | $1.45 | 13.00% | 3.10% | 3.10% | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
The covered calls stock options position for SimpleTech offers a healthy downside protection of +13% while maintaining a +3.1% potential profit. This in-the-money [ITM] covered call stock options position has a nice potential return, and expires in just 37 days.
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[tags]Manouch Moshayedi, iPod, U.S. Military, OEM, DRAM, miniSD, PDA, PC, Simple Technology, Santa Ana, California, Kingston Technology Company, Inc., PNY Technologies, Inc., MU, Micron Technology Inc., SNDK, SanDisk Corp., STEC, Simple Tech Inc., covered call investment strategy, investment strategy, iron condor, option income, poweroptions, selling naked puts, stock option trading, stock options[/tags]