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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.