Good evening thread.........SanDisk....
As most of you know, I invited Tom Ausdauer to join the discussion on SanDisk, both to better understand what kind of critter it is, and to understand its IPR. Below are his brilliant and uncommonly objective comments. The last paragraph gets to the bottom line.
Apollo
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Stan,
PLEASE FEEL FREE TO POST THIS INFORMATION AND EMBELLISH IT AS YOU SEE FIT. IT WOULD BE MY PREFERENCE THAT YOU POST IT IN ITS ENTIRETY RATHER THAN EXCERPTING. THIS IS MY PERSONAL AND HUMBLE OPINION ON THE CURRENT SITUATION SANDISK FACES. DIFFERING OPINIONS AND CRITIQUE IS WELCOMED.
I have had scattered requests to revisit some issues related to SanDisk's potential and how best to categorize the company. To be blunt, I think that the whole Gorilla Game thing is a bit overdone. The fact is you can spend a lot of energy looking for the company that fulfills all the requirements of a nascent Gorilla and overlook many stellar companies in the process. For this reason I find the search for the perfect gorilla to be quite exasperating at times.
If I had to pigeon hole SanDisk right now I think it would need to be classified as a King. The CompactFlash Standard is now well accepted in the digital camera market with SmartMedia remaining a close second. (SIDE NOTE: SanDisk now manufacturers its own branded SmartMedia cards.) Capacity and cross-platform compatibility still give CompactFlash a distinct advantage. I am not in the least bit concerned about rotating media. In addition, SanDisk has developed close relationships with the major OEM providers such as Kodak, Nikon,... such that they will have a foot in the door when time comes to introduce the next standard-- which may be the MultiMediaCard or another sibling in the SanDisk memory card family. For the time being, CompactFlash remains an excellent solution in the digital camera arena. The only lingering problem has been SanDisk's inability to capitalize on patent issues related to card assembly. These have to deal with the incorporation of the controller chip and proprietary firmware which help to maximize performance of the flash memory storage. Proprietary issues include such things as the way in which files are addressed, read, written & erased, detection and deletion of defective memory cells from write cycles, wear leveling, etc... The test case is being tried currently. I have information from court documents which indicate that the CEO of the defendant firm admitted outright that they infringed on SanDisk patents in creating their final product. This was volunteered during royalty negotiations between the two companies in the Spring of 1998. To make matters worse, the CEO of the defendant company is an ex-employee of SanDisk. The two companies did not see eye-to-eye on the monetary value attached to the licensing agreement so the court has been asked to intervene. Presently SanDisk is seeking an injunction against the defendant and additional court dates have been set for January of 2000.
The current royalty stream which SanDisk enjoys appears to be related to core flash memory manufacturing patents, not CF. While these contributions to total revenues have steadily increased, they have not grown in proportion to the flash memory market as a whole. Thus, it is clear that the arrangements are not directly linked to production rates of raw flash chips by competitors. In addition, the longevity of the contracts and other important facets of the final agreements remain privileged.
The possible problems which could derail SanDisk would be the inability to secure a royalty stream for the production of "generic" CompactFlash memory. That is to say, CompactFlash manufactured by so-called "card assemblers" would not be subject to any royalty payments. Currently any number of companies have flooded the market with their private label of CompactFlash. This has not lead to any additional revenues for SanDisk. Simply put, the CompactFlash standard is Open and Non-proprietary. Furthermore, if there is a migration to smaller form factors introduced by SanDisk (MMC and SDMC), a similar non-proprietary standard may evolve. In this situation investors in the company may be asked to relive the nightmare which has been experienced to date with CF. The worst case scenario would be a departure to a wholly different standard or to a non-flash solution. This type of scenario is plausible, but not probable in the near-term.
I think it is important to recall that if SanDisk were certain that intellectual properties were sufficient to run their core business they would not currently be expanding beyond the fabless arrangements which have been utilized to date. They have been forthcoming in their announcement of a tentative agreement with Toshiba that would meld the process patents and expertise that Toshiba possesses with the extensive flash memory patents that SanDisk owns. This will lead to a very cost-effective manufacture of the key flash memory components for a variety of products, but put both companies at the mercy of market demand/pricing and subject them to possibly punishing production cost overruns. To their credit, SanDisk also recently perfected process technology for multilevel cell (MLC)storage with permits 2 bits of data. This will afford them great manufacturing efficiencies if yields remain acceptable and product reliability is maintained. A recent technology acquisition may allow 3 bits per cell in the future. This combined with Toshiba's process expertise and patents in a lesser expensive flash solution, NAND flash cell architecture, could lead to substantial additional revenues.
If all the pieces of the puzzle were to fall together for SanDisk I could envision steady royalty revenues for CF, MMC and SDMC. This would require very vigorous legal representation as has been SanDisk's style to date. In addition, SanDisk has impressive process techniques which will allow for efficiencies of production that will lower consumer cost and accelerate product acceptance from a cost perspective. This may open addition avenues for application of flash memory beyond the exciting doors which have recently been opened.
In summary, SanDisk is a handsome prince looking for a throne. If things fall SanDisk's way I believe that a metamorphosis to a different primate is possible. Either way I am betting on them to be a dominant force in the removable memory arena.
Good luck in your hunt.
Tom
SanDisk...See the Big Picture |
