Sam, Prophet and Thread,
re: commoditization
Regarding Sam's post #8959
I agree 110% with what you have said, Sam. I do, however, take exception to the use of the term "commoditization". I am not sure it applies directly to SanDisk as Dr. Harari has intentionally created open standards for CF and MMC. Thus, the notion of "commoditization" is quite intentional. It seems rather generous of SanDisk to intentionally "commoditize" its flagship product, CompactFlash, then turn around and "commoditize" its little sibling, MMC, but it is what the industry demands. I have wrestled with this concept and continue to wrestle with it given the protracted nature of the IP defense of the CF card assembly patents. In general I believe that "commoditization" actually works in SanDisk's favor. If you have the time or interest, you may wish to reread the following post from early July of 1999.
Message 9977057
When the issue of "commoditization" comes up I often go back to read this.
I guess in my own mind the concept remains a bit fuzzy.
The points you make, Sam, are well taken. There may be several barriers to overcapacity in the flash memory market. I wished to make a couple of observations knowing I have little hard data to support my contentions.
1) As you have outlined, there have been lessons learned in the past as a result of overproduction in the DRAM market. The willingness to blindly finance and build production capacity "willy-nilly" must be tempered now by economic reform. Asia is still in the process of recovery. Capital is less plentiful. I think you make a valid argument.
2) SanDisk may be somewhat protected by its IP. This may deter competitors from stepping in in a hurried manner. Unfortunately, CF offered little in the way of resistance to competition and the growth in royalty/licensing revenues (from the Fall of 1998 to the current quarterly totals) is more linear than exponential. Thus, this offers a relatively thin cushion for SanDisk operations. No doubt that they are not resting on their laurels.
3) SanDisk and Toshiba will likely need to make margin adjustments without waiting for market pressures to push them down. Avoiding high calorie, fatty margins at the beginning may discourage other competitors. The manufacturing efficiencies and expertise that both companies bring to bear will give them some latitude in "dialing in" a comfortable level of profitability over the next 1 1/2 or 2 years while production remains constrained. Competitors will need time to think out a business plan and identify their battle zones. Eli has visions of being the highest quality, lowest cost manufacturer and his competitors have already given him a head start. Also, more diversified companies are facing growth in related areas which will diffuse investments in new capacity. SanDisk is focused like a laser on the flash storage market.
There are several other points I wish to make, but will save them while I wait for a response to these remarks.
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