Sam and Thread,
I have been giving a lot of thought to SanDisk's positioning in the consumer market. My wife tells me I wake her up in the middle of the night screaming "commodity" through clenched teeth while drenched in sweat.
The current argument I have against CompactFlash being a commodity is as follows.
First, we are still in a situation of undersupply. With each passing quarter the demand for CompactFlash continues to rise due to growth of the digital camera market and the early adoption of other consumer products using CompactFlash. Digital photography is now on Main Street, USA, but, as Eli says, we are only on the first block. Also, as the broad-based growth in the semiconductor industry continues and demand for many different varieties of flash memory increases it will become increasingly difficult for a diversified competitor to focus purely on flash production. SanDisk is dedicating 100% of its growth to the production of flash memory and has no distractions to derail this effort. So until signs of overproduction are "clear and present" I believe it is safe to remain very optimistic about SanDisk, CompactFlash and a variety of other products in the SanDisk pipeline.
Second, CompactFlash is not DRAM. DRAM is a drab, black bar of silicon that Michael Dell buys and jams into your PC. It is lifeless. It is hidden from sight and inaccessible to the average computer user. It is not directed to the consumer audience for purchase. As such, assuming that performance is equivalent between manufacturers, price is the only feature which distinguishes DRAM "A" from DRAM "B". It is this dependence on price structure that relegates DRAM to commodity status.
Third, performance is a key component of CompactFlash. Manufacturers of CF cards need to remain current with the "community standard" of product being offered by competitors in the field. In particular, they need to insure compatibility with all the end-user consumer electronics items. CF manufacturers must have reasonable product reliability including acceptable write speeds, error detection/defective cell elimination, security features and capacity while remaining confined to the current pricing range for the finished cards. The CF cards currently on the market appear to comply with these prerequisites. And as long as supply remains constrained, a certain degree of "forgiveness" for cost overruns/manufacturing inefficiencies exists. As WORLD CLASS, leading edge technology companies such as SanDisk begin to streamline production costs and take advantage of the substantial cost savings that result from the rapid and successful implementation of engineering advances, it is possible that some of the competing card assemblers will be unable to provide product while remaining within the boundaries of profitability. This will be especially true if SanDisk successfully defends its CF card assembly patents.
Finally, regardless of the supply/demand equilibrium, for the next several years the consumer will continue to demand a lower cost removable memory solution for digital photography and portable computing. A reduction in ASP's and the cost per MB of memory is inevitable. I expect that these demands will occur in concert with sky-rocketing consumption and ongoing improvements in production efficiency. I anticipate the fall in ASP's will be gradual and tolerable, not sudden and nauseating. Also, as demand escalates, the impact of fixed overhead in production of CF will be less and the reduction in unit cost should be able to be absorbed.
By the time CompactFlash is feeble, gray-haired and ready for the nursing home, one of its descendants will be rising to the occasion. And for the time being CompactFlash is a vigorous, energetic adolescent just waiting to prove itself to the rest of the World.
All IMHO,
Ausdauer |
