Since 1967, Dataram Corporation (DRAM) has manufactured high-quality computer memory, storage products and software. Its products are currently sold to over 70 Fortune 100 companies worldwide. Dataram provides customized memory solutions for original equipment manufacturers (OEMs) and compatible memory for leading brands including Dell, HP, IBM and Sun Microsystems. The company maintains a significant presence within civilian governmental agencies and the Department of Defense who use its products for the most demanding mission-critical applications. Dataram operates a state-of-the-art US manufacturing facility which runs under stringent ISO 9001 standards.
On May 8, 2013, AMD Micro Devices Inc. (AMD) announced the launching of its AMD Radeon RG2133 Gamer Series Memory and Radeon RAMDisk 4.1 naming Dataram as it's manufacturing partner in this important program for both companies. Part of the announcement stated:
"The newly introduced Gamer Series Memory is composed of high quality components that help deliver top memory performance and reliability. With Dataram, AMD's memory manufacturing partner, AMD is proud to introduce Gamer Series to its product line up as well as the improved performance of AMD Radeon RAMDisk that allows gaming enthusiasts to load their favorite games significantly faster, saving time and eliminating frustrations."
"AMD and Dataram have worked together to significantly enhance the dynamic background load-and-save feature in order to create a seamless, non-volatile RAMDisk experience," said Jason Caulkins, CTO, Dataram. "This underscores AMD and Dataram's continued dedication to delivering the highest-performing memory products for PC enthusiasts."
Dataram provides a turn-key solution to AMD in this program by designing, manufacturing, selling, and marketing the Gamer Series memory modules.
Prior to the AMD deal, DRAM's revenues declined gradually but steadily as can be seen in the company's quarterly financial earnings summary. The decline was due to cheap memory prices and lower demand for its core products.
The positive effect of the new AMD partnership was immediate as can be seen in fiscal 1Q 2014 results (last quarter ended July 31, 2013).
The 10-Q for 1Q 2013 states "Revenues for the three month period ended July 31, 2013 were approximately $7,367,000 compared to revenues of $7,998,000 for the comparable prior year period. The decrease in revenues from the prior year's first quarter was the result of a decrease in average selling prices of approximately 31%, attributable to a decline in the price of DRAM chips, the primary raw material used in the Company's products. The decline in average selling price was partially offset by an increase in volume of approximately 11%.
To estimate the contribution of AMD' Gamer Series modules to DRAM's Fiscal 1Q 2014 revenues I applied the 31% price decline in DRAM chips and added the 11% volume increase mentioned in the 10-Q to last year's $7.99M 1Q 2013 revenues. The result was $6.1M. This is in line with the trend observed in the prior three quarters for core-product sales. This also meant that the difference of about $1.3M between the total 7.4M quarterly revenues and $6.1M resulted from sales of the AMD Gamer Series memory modules.
The absolute net loss for 1Q 2014 was the lowest in 8 quarters. The 10-Q states "….the loss in this year's first quarter would have been $619,000, however the Company recorded non-recurring charges of $275,000 for the reserve on the note receivable default and also approximately $30,000 severance cost. As a result of the cost reductions the Company has eliminated approximately $518,000 of annualized expense…"
My revenue estimate for Fiscal 2Q 2014 ending October 31, 2013 and expected to be reported in mid-December 2013 ranges from $9 - $10M. This will be the 3rd consecutive quarter showing significant gains. I also expect income to range from a tiny loss to a net profit. Specifically, this is what I expect for 2Q 2014 in terms of revenues and net income:
Core-product revenues: $6.5 Million. There has been a significant uptick in memory prices in September and October as seen in the DRAM Index (DXI chart on left, middle of the page). This should have a positive effect of core-product revenues.
AMD memory modules: $2.5 Million because of: 1) Full quarter sales, and 2) Revenue boost resulting from promotions by Newegg, AMD, and DRAM.
Contribution from a new contract win announced July 31, 2013. The announcement read: "…Dataram has been awarded a contract to supply over $900,000.00 of memory modules to a multinational solutions integration company. The majority will be shipped immediately and the remainder within 60 days."
It is clear that Fiscal 2Q 2013 financial results will represent the 3rd consecutive quarter of significantly improved results thanks primarily to the successful execution of the AMD-DRAM partnership. 2Q 2014 results will obliterate last year's results in revenues and net income.
Looking ahead, fiscal 3Q 2014 ending January 2014 will be another quarter of sequential improvement to the top and bottom lines. This is because Dataram is expanding its distribution network into Canada per the October 16, 2013 announcement, holiday sales, and heavy AMD/Dataram/Newegg promotional efforts. Regarding the expanding distribution network for AMD memory products, Dataram's CEO John H. Freeman stated on October 16, "Dataram is pursuing additional relationships with other US and Canadian-based retailers and e-tailers, system builders and distribution partners to further market penetration and availability of AMD Radeon and Server memory."
In conclusion, Dataram is quietly lying down the foundation for potentially explosive growth. The expanding acceptance of the AMD Gamer Series memory modules by gaming enthusiasts in the US and Canada will likely lead to an eventual global expansion. After all, the gaming industry is expected to grow significantly globally in years ahead.
The Dataram transformation has gone unnoticed and this is why the stock is trading at close to 0.1 times sales and near lowest levels in the 47-year history of the company. The current market cap is only $4M dollars which is laughable in relation to the growth it's starting to experience. Back in 2010 DRAM traded North of $30 on far less potential and diversification. The potential is definitely there for DRAM to return to those trading levels if it keeps the current momentum going and makes the right moves to ensure sustainable growth going forward.
On November 8, 2013, Dataram announced that it had signed a Financing Agreement with Rosenthal and Rosenthal, Inc. for a revolving loan with a maximum borrowing capacity of $3,500,000. Dataram's CEO Freeman commented, "These are steps we are taking in a program to strengthen our balance sheet, reduce expenses and have working capital available to support large recent wins and to position Dataram for future growth."
As more earnings reports are released showing the improved results that I expect, the stock price and trading volumes will inevitably go up. But low floaters like DRAM can be very risky investments if things don't go as planned. For a complete discussion of all risks and uncertainties, I advise potential DRAM investors to carefully read the most recent company 10-Q.
Disclosure: I am long DRAM. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. (More...)
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