The important factor in a commodity business is not the growth of unit sales, it is always the growth of manufacturing capacity vs. demand. That drives price, which drives gross margin percent, which drives net profit, which drives stock price. The market can grow 200% each quarter; if the capacity grows 300% the stock will decline.
I don't have a crystal ball or inside information, I don't know if manufacturing capacity will soon grow faster than demand. But I do have a ton of respect for the wisdom of the markets, and the markets are saying that something has changed. I think we all know that the market for NAND flash is growing and will continue to grow, what is really hard to figure is how fast capacity will grow.
The market has bid up SanDisk stock because it anticipated the current shortage versus the demand, and the subsequent unit prices and gross margins. It doesn't matter what capacity is today, or the extent of the shortage today, the market will anticipate, almost always correctly, what the demand/capacity situation will be in the future. And the stock will trade on it's future prospects, not on how many pennies a share it will make in the current quarter.
In any commodity business, greed rules. If there are high profits to be made, manufacturers will increase capacity, and they will ALWAYS, EVENTUALLY overshoot the mark. If that is going to happen in the near future in this market is an open question. But you should try to think of flash as the silicon equivalent of oil. Demand v. supply determines stock price. And there are a lot of smart folks out there that know the numbers better than we do.
Good luck to all,
John |
