TSRA

Quarter preview -- units are doing better than expected so that means Q4 guidance (remember the 1 quarter delay in their results) should be a little better than expected. no other catalysts unless they announce a new customer for micro pilr or digital optics -- that would be important.

Cowen out a month or so ago saying $3 in earnings potential in 2009. I think his operating margin assumptions (over 70%) were a bit unrealistic. My numbers would suggest the following:

2009 EPS estimate -- figuring 2 cents per unit and 80% share of units shipped gets you about $300 mill for the base CSP business assuming around 19 bill units in total (19 X .80 X .02). Add in about $40 million in service revenue plus something for the new optics business/micro pilr -- say $40 mill gets you total revenues of $380 mill. Figure about 50-60% operating margin (last company guidance is 50% although at that revenue level operating margins could be closer to 60% due to operating leverage) plus 40% tax rate and around 50 million in shares gets you EPS of around.... $2.50. That's not counting stock option expenses (I look at cash flow and stock options are non-cash).

Maybe they will be able to do $3 but its a good bargain at $2.50 so why push the numbers?

Put a 25X PE and add back in a few dollars in cash on the balance sheet and the stock could easily be in the mid to high $60's based on 2009 estimates. When? could be a year from now to 18 months when 09 is discounted in the stock. up about 70% in 12-18 months is pretty darn good.

The question is can you stomach the volatility? Its a great long term story but no obvious reason to own until late Q1 of next year. I have a strong stomach but that might not be true of everyone. have to keep your eyes on the longer term prize and not worry so much about the gyrations in between. Figure in 2010, the revenues could be between $450 and $500 mill. Do the math on earnings and you get over $3. Stock could reach $80 in 2-3 years.

There is plenty that can go wrong -- micro pilr doesn't expand market nor hold on to largest customers post license expiration. unit growth may not materialize due to a recession or slow down in wireless and DDR2 DRAM unit growth.

I think the odds of success are in our favor. That's why this is one of my largest holdings.