Art,
You stated...
But Eli had a few comments about the smaller companies probably being unable to weather the current conditions and leaving the market as a result.
The other comment that I thought was interesting was the emphasis on the "very important" relationship between SNDK and Toshiba. Even though SNDK gave up its right to any royalties from this relationship, it got in return the muscle and the manufacturing/marketing/management experience of a really big company involved in electronic appliances. The two will share the output of the Virginia plant equally, and when that plant is in full operation later this year, it will be the lowest cost producer.
SanDisk and Toshiba
Yes, I think the Toshiba support is important as well.
But what I see developing is smaller players dropping out of the
flash card market while others try to fortify their position
at whatever near-term cost. How will this work? I suspect
some of the larger memory assemblers like Simple, Viking and PNY
will try to arrange flash purchasing contracts with a specific
flash vendor. The vendors are primarily Hitachi, Samsung and FlashVision.
As demand at retail remains below expectations we are still faced
with an oversupply/inventory workdown situation for all players.
Price wars will continue as retailers try to move product. Vendors
will facilitate this by making sharp pricing concessions so that inventory
can be assembled and shipped. The fact that SanDisk wrote off a big
chunk of inventory in Q1 is bothersome for two reasons. First,
the quarter represents the peak aftermarket period following the
holiday season. Second, Eli indicated in January that most of the inventory
was raw material and reflected advanced process (read: low cost basis?)
flash. Despite these favorable factors we had negative margins. And
you can imagine that Lexar, Simple, Viking, PNY,... all have similar
inventory problems. Add to this the ongoing output of UMC, Yokkaichi,
the Hitachi production agreement from Q4 of 2000, and FlashVision
coming on-line and I still see several quarters of oversupply
ahead for SanDisk.
You will recall that one of John Reimer's objections to SanDisk's
licensing terms was the lack of flexibility regarding the source of
flash memory used in Lexar's products. It suggests that SanDisk was
trying at that time to leverage '987 licenses for long-term purchasing
agreements of output from a preferred flash manufacturer. The logical
source is FlashVision in this instance. In retaliation, Lexar appears
to be flaunting its licensing successes and thumbing its nose at
FlashVision by alligning themselves with Samsung. (This despite the
fact that Toshiba was an early investor in Lexar Media.)
In the mean time Lexar and others not saddled with fabs to run profitably
will see sharp reductions in raw material costs. Lexar is working
out a consignment package with Samsung which should help to insulate
the company from depreciation of their finished product. Other
assemblers must be thinking along similar lines.
Meanwhile SanDisk and Toshiba are going to have a lot of flash wafer
to divide amongst themselves. Toshiba is also going to be competing
with SNDK in the SDMC market. It will be unreasonable to sell cards
of SanDisk origin selectively and expect Toshiba to take a loss on their
portion of the production. There must be a lot of potential for
friction between SanDisk and Toshiba in this regard.
I will plan to record and listen to the c.c. over the weekend.
Perhaps some of my concerns were addressed by Frank and Eli.
Aus |
