John, I listened to the whole cc. Definitely not a very encouraging scene for the next quarter or two, but after that possibly some optimism.
Perhaps the most important factor for SNDK is its close relationship with Toshiba. The FlashVision joint venture is considered the key to future profitability, as it will produce high capacity cards using .16 micron technology, which gives a lower cost than the technology currently in use. SanDisk benefits from the much larger engineering and managerial capabilities of Toshiba. Toshiba benefits by getting access to key proprietary technology owned by SNDK. In the end, these two companies may become the major producers of removable flash memory products. Harari thinks that the smaller players, especially those totally dependent on external fabrication facilities, will have very tough going and many of them will simply exit the market. He did not mention any names, but we all know that one of the most vulnerable is Lexar.
I was able to ask a couple of questions: On the progress on the kiosks, to be operated jointly with PMI, they are behind about one quarter because of the need to make the software more user friendly. They expect to have some sites in the Bay area in Q3, with revenues expected in Q4. On the performance of CF cards, especially the write speed, Harari said he thinks SNDK is competitive with others and expects to have improved write speeds shortly. He acknowledged that some people (again no names, but we know one is Lexar) like to have bragging rights about the write speed of their units, but he thinks there is very little practical difference.
This report and the accompanying cc was not as bad as one might conclude at first site. Perhaps the most encouraging thing is that SNDK is financially able to weather the storm, whereas others are not. Also, the number of manufacturers who have decided to use the SDMC is encouraging, and they expect sales to pick up greatly in the remaining part of the year.
As for the worrisome parts, including the $45 million inventory write down, this was caused by sudden cancellations of orders, many from long term customers. SNDK chose to absorb the inventory rather than force the customers to pay for unwanted product. At the same time, because of the 3-4 month lead time ordering from the Taiwan factories, they couldn't cancel the orders until it was too late. I'm assuming that they are selling excess inventory at bargain prices. Maybe that's why Amazon.com was advertising SNDK 64 mb CF for about $60.
Art |
