Here's a SMART Stock

Everyone from Cisco Systems (Nasdaq: CSCO  ) to Intel has reported a slowdown in the computer industry. It's no surprise to see SMART Modular Technologies (Nasdaq: SMOD  ) add its voice of restraint to the Greek chorus. (Does that term sound catastrophic these days? Sorry.)

What is both surprising and encouraging about SMART Modular is the strength of its business headed into this seemingly difficult period. Its $219 million in fourth-quarter sales represents a healthy 119% year-over-year jump, and even a sequential 9% gain. The company also turned the year-ago period's break-even bottom line into GAAP earnings of $0.26 per share. That's nothing to sneeze at when the sky is falling on SMART Modular's head. Even the next-quarter outlook is reasonably strong in comparison to other industry players. Sales are supposed to follow roughly seasonal patterns, with perhaps a slight dip below that.

Why is SMART Modular doing all right while others suffer? It doesn't exactly follow their same well-traveled routes. Thanks to a substantial investment in manufacturing capacity in Brazil, the company is becoming a powerhouse in one of the famed BRIC countries, riding Brazil's relatively healthy economy to great results of its own. 

The PC market down there seems to be doing well, and SMART Modular supplies memory modules to leading systems manufacturers Hewlett-Packard (NYSE: HPQ and Dell (Nasdaq: DELL  ) in that region. Cisco routers also come equipped with SMART Modular memory in South America. More than half of the company's total sales come from Latin America and Canada these days.

Alongside partner and competitor STEC (Nasdaq: STEC  ) SMART Modular is still waiting for the solid-state storage market to gain traction. The memory module division currently rakes in 86% of company revenue, but that will change when the SSD revolution comes. It's just a matter of time before flash memory chips become cheap enough to become a real alternative to magnetic platters for almost any application.

You've seen the current growth rates happening here, yet the stock trades for less than 11 times trailing earnings. The storage industry as a whole is super-cheap, and SMART Modular could become one of the most exciting growth stories on the block in the next year or two. My outperform call on this stock in CAPS is currently hurting my all-star rating a bit, but this, too, shall pass. I'm in for the long haul. Maybe you should do the same.

Fool contributor Anders Bylund holds no position in any of the companies discussed here. Intel is a Motley Fool Inside Value selection. The Fool has written calls (Bull Call Spread) on Cisco Systems. Motley Fool Options has recommended buying calls on Intel. The Fool owns shares of Intel. Try any of our Foolish newsletter services free for 30 days. True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community. You can check out Anders' holdings and a concise bio if you like, and The Motley Fool is investors writing for investors.


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  • Report this Comment On October 03, 2010, at 7:07 PM, flashfinancials wrote:

    The statement in the article: " It's just a matter of time before flash memory chips become cheap enough to become a real alternative to magnetic platters for almost any application" is based on a poor understanding of the economics between SSD and HDD. Currently, SSD's are an order of magnitude more expensive than HDD, 10x-40x depending on the application. SSD's are dropping in price as flash memory, its main cost driver, is dropping in price. The memory drop over time is roughly based Moore's law.

    But...guess what...HDD's are dropping in price over time also...at roughly the same rate as SSD's. I have not seen any projections that show SSD doing better than HDD on cost per Gb. Jim Handy has a good chart of historical prices and forecast prices in this presentation here (see slide 15):

    http://www.snia.org/events/storage-developer2010/presentatio...

    SSD's are not likely to penetrate deeply into the broader consumer market. They will find many applications where the speed and power benefits are worth the big cost tradeoff. But SSD will not compete with HDD's on price anytime in the next few years, which makes broad adoption in the consumer PC/laptop market highly unlikely.

  • Report this Comment On October 08, 2010, at 3:29 PM, jrmart wrote:

    Here's another opinion based on REAL FACTS, not shoot from the hip unfounded theories. These REAL FACTS verify that the best and fastest RAID enterprise hard drives will cost SIX TIMES MORE than STEC's enterprise Zeus drives to do this same real world application.

    Often, storage systems are architected to deliver pure performance. To do this, system designers will aggregate (RAID) hundred, sometimes thousands of disk drives to raise the performance of the system to the required levels. Many times, the capacity yielded by these systems is not needed or the value or accessibility of the data on this extra capacity does not warrant the cost.

    Below is a comparison of two storage systems each designed to deliver 100,000 IOPS or transactions per second. One system is configured with STEC ZeusIOPS SSD's and the other configured using 334 36GB, 15,000 RPM enterprise-class disk drives.

    Just looking at the number of drives needed to sustain 100,000 IOPS, you can quickly get a sense that at 300 IOPS per HDD, it is going to take a lot of drives to get the job done compared to just two ZeusIOPS SSD. Aggregating the performance of 334 HDDs means you will need 24 large enclosures each with their own heat generating 500 watt power supplies. Once you have all of this storage assembled, you will need to aggregate these with Fibre Channel switches and some layer with one or more RAID controllers. Add a couple of data center racks to house everything in and you can see the upfront hardware costs of the HDD system is about 6 times the cost of the ZeusIOPS SSD system.

    Now let's look at the recurring costs. All those HDDs and related hardware will generate lots of heat. And in a data center, the air conditioning works very hard to replace that heat with cool air since heat is not conducive for good electrical component health. Recurring cost comparing the two systems shows that the enterprise HDD system will cost about 24 times that of the ZeusIOPS system on an annual basis.

    ZeusIOPS SSD means less servers and storage are needed to scale performance. It also means less server acquisition and maintenance costs, less volatile power and cooling cost, and fewer software licenses to buy.

  • Report this Comment On October 08, 2010, at 3:56 PM, jrmart wrote:

    TODAY'S REAL FACTS.

    SSD's have already penetrated the consumer market by the MULTI-MILLIONS.

    Do yourself a favor and visit an APPLE STORE, a Target store, Best Buy, or any CELL PHONE STORE if you really want to see solid state drives flying out the door.

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