The comparison to Symbol Technologies
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The reason I wanted to mention Symbol Technologies here
is because I believe it is possible to draw several
parallels between SBL and SNDK.
Symbol's bar code scanners revolutionized daily transactions
at the retail level. When I was a kid we went to the local
Piggly Wiggly for groceries. At the checkout the teller
would have to locate individual price tags for each item
and peck them into a large, beige, mechanical cash register
(remember those?). When bar codes finally came out there
was an overnight revolution. Items could be "tagged" with
a unique UPC. Corresponding prices could be logged into a
central database and eliminated the need for individual
labelling of items. The long lines at the register got
shorter. Checkouts went faster. Human error was removed
from the equation. Clerks saved their finger nails. Beige
mechanical registers were recycled for scrap metal.
Bar codes were great for everyone.
Bar codes now pervade nearly every aspect of daily life.
All retail interactions are mediated through bar codes.
Mail is bar coded to home addresses. Inventory is a snap.
Everything from medical records to movie passes to auto
parts to UPS boxes are now bar coded.
The adoption of bar codes as a universal serialization
procedure helped Symbol because of the technology they
designed to read these codes. Manufacturers did not bear
any additional cost from the adoption of these codes.
Retailers made an initial investment in purchasing a
set of bar code readers, a central database for pricing,
and training costs. The efficiency of the system likely
paid for these initial capital outlays in a relatively
brief period of time, certainly several times over within
the lifetime of the devices themselves.
Symbol's edge was a patent on the laser system that read
the bar codes. Packages could be mangled or torn, wrinkled
or defaced and yet the laser was able to handle seemingly
impossible tasks. Symbol established a recognized and
trustworthy brand name. Symbol is the leader in bar coding;
a situation which, in part, arose from their contributions
in developing and deploying the technology.
Symbol's competitors license the laser technology bar code
required for reading the labels. Symbol sells the scanning
engines to competitors. Symbol manufactures their own
brand of devices. Thus, the market place was assured competition,
second sourcing, and the convenience of a universal standard.
This gave retail and industrial clients the ability to switch
vendors if they so chosed. Symbol was thus charged with
producing a desirable product line so as to maintain
valuable market share, but they also benefitted from the
sale of competitors' units due to the licensing agreements.
SanDisk now finds itself in a similar position with its
flash card business. In this instance the empty card slot
represents a value to the manufacturer as it keeps costs
down, simplifies the design/layout/implementation of goods,
allows them to plan future generations with the an added
level of certainty/confidence/reassurance/security, and
helps to distinguish themselves from competitors using
alternative standards (non-standards?). The CF or MMC or SDMC
slot is the equivalent of a bar code in this sense.
The main differences currently are as follows. The primacy
of a given memory standard is not certain; there can be
challengers with the same technology (flash memory) or
even competing technologies. In contrast, nobody has found
a better mousetrap than a plain black-and-white bar code and
the chances grow slimmer and slimmer each passing year. Also,
the installed base of scanners represents a significant hurdle
for new technologies due to the capital intensiveness of
re-outfitting the entire user base with new hardware.
SanDisk is not shielded by these enormous disincentives
known as "switching costs".
Another important difference is that in SanDisk's
case the "customer" is the average consumer. Symbol
has thrived due to the fact that the retail industry
and so-called vertical markets have been willing to
invest in the technology given the clear and immediate
benefits and cost savings. There is less of an impact
(although no total immunity from) price erosion and
competition. The same cost-savings argument cannot be
made with flash cards currently with the pricing structure
in place except, perhaps, in the digital photography market
and for industrial (telecommunications) applications. Pricing
pressure will represent a definite risk to SanDisk. Having
said that, the demand side of the equation will be greatly
in SanDisk's favor. Symbol can potentially sell a few
handheld scanners to every retailer, retail outlet, inventory
center, factory,... in the world. These sales are not insignificant.
Potentially huge sales (like the US Postal Contract in 1997)
are possible, but competition is fierce and single contracts
of this size are relatively infrequent. Despite pricing
pressures, SanDisk's markets are significantly larger.
Volume sales could potentially make up for any erosion in
margins that may occur with time given supply constraints ease.
Another key issue is the fact that SanDisk has not secured
royalties for the cards themselves. Although they enjoy a
substantial revenue stream from the sale of stand-alone flash
chips (those manufactured by competitors) and the CompactFlash
assembly patents have been successfully defended, these still do
not bear enough fruit to be sufficient for subsistence in and
of themselves.
SanDisk is shaping up to be a company that follows the same
pattern of maturation as Symbol Technologies. There are
still any number of uncertainties which could capsize
SanDisk. As they are transformed by the markets they serve
from the a vessel the size of the "S.S. Minnow" to an
ocean liner of the likes of the "QE III" they may be better
equipped to weather the storm.
Ausdauer
(hoping for a less choppy seas, yet with a light gale to fill our sails) |
