Prophet,
That is, to my mind, the only issue that could derail Sandisk's success. Commoditization. It is impossible to tell for sure when it might occur. It doesn't mean that profit is impossible--for example, Samsung is making good money on DRAMs now, and Intel, well, you know that story, and in some ways, Sandisk is more similar potentially to Intel than they are to Samsung. Many of the same players who destroyed the DRAM market are playing in this market, though the Taiwanese presence in DRAMs was much stronger. Still, Samsung, Fujitsu, Toshiba are all ferocious competitors who have in the past who have shown a willingness to lose mammouth amounts of money in pursuit of control of a market. I am cautiously hopeful that they won't do the same thing to flash for several reasons:
1. Partly because of their collective DRAM experience, which has been such a rollar coaster ride
2. The Asian crisis of two years ago. Yeah, they weathered it (appparently), but one of the reasons why it happened was because they had access to such cheap capital with which they could build new capacity without regard to return on investment. They have to pay attention to that now, and the capital isn't as cheap.
3.Sandisk's IP and associations like the CFA which may help to control excesses somewhat (and certainly will insulate Sandisk more than other companies from being completely ravaged)
4. Sandisk's JV with Toshiba. They should build their capacity just as quickly as they can, and NOT get greedy for high margins during the good times. They have to make a realistic business model, with realistic margins, and push their prices down to those margins as aggressively as possible. Yeah, they'll lose some profit that maybe they could have gotten short term while capacity is tight, but they'll just lure competition in with fatter margins than is realistic in this sort of market. It is more important for them to capture volume markets and discourage competition than it is for them to make a few million more dollars in the short run.
I'd also like to hear more discussion about this issue. Having been an investor in the disk drive business, it is my biggest fear for this company.
Sam |
