Dow Jones Business News
Shares of SanDisk, Lexar Media Decline Amid Concerns
Tuesday December 16, 1:37 pm ET
By Roger Cheng
NEW YORK -- Shares of two flash memory card makers tumbled Tuesday amid concerns that an excess supply of chip sets for the cards could drag pricing down, according to one Wall Street analyst.
Shares of SanDisk Corp. (NasdaqNM:SNDK - News) and Lexar Media Inc. (NasdaqNM:LEXR - News) both fell as much as 11% after South Korea's Samsung Electronics Co. said it plans to invest 628.8 billion won ($531.8 million) to boost its output of dynamic random access memory, or DRAM, and flash-memory chips.
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In addition, W.R. Hambrecht analyst Satya Chillara pointed to concerns fueled by an article that appeared on EBNews.com about three companies jumping into the flash memory chip business. EBN is a print and online weekly newsletter that focuses on business management in the electronics industry.
The story published late Monday purports that the shortages in the chip sets used for flash cards could end as early as next year with Micron Technology Inc. (NYSE:MU - News; MU), South Korea-based Hynix Semiconductor Inc. and STMicroelectronics NV (STM) entering the fray with their own chip sets.
Samsung is one of the largest producers of chips known as NAND chips, which go into flash memory cards made by Lexar and SanDisk. But with its additional output and three new suppliers, flash memory pricing power would deteriorate as supply spikes, Mr. Chillara said. The issue has lingered for the past month, and was reignited by the article and Samsung news, he added.
But Mr. Chillara was quick to point out that Samsung wouldn't jeopardize its " golden goose" by flooding the market with a glut of chip sets. He added the companies proposing to jump into the business likely won't have anything out until the end of next year or early 2005, although Hynix may be able to begin production by the second half of 2004.
"We still like both companies," Mr. Chillara said. With the run-ups in stock prices both companies experienced earlier this quarter, investors are "dumping the stock first, and asking questions later."
Mr. Chillara doesn't own shares in either company, and W.R. Hambrecht doesn't have any investment-banking relationships.
Representatives for the two companies couldn't immediately be reached for comment.
At about 1:10 p.m. EST, shares of SanDisk were down $6.27, or 10%, to $54.59, and Lexar's share fell $1.34, or 8.1%, to $15.20. Both stocks are traded on the Nasdaq Stock Market (News - Websites) .
SanDisk is under more pressure than Lexar because it is seen as the company that may face more margin expansion if Samsung does increase chip production, Mr. Chillara said.
SanDisk has an agreement with Japan's Toshiba Corp. to co-fund a production plant for NAND chips. Mr. Chillara said it is possible that Lexar could purchase cheaper NAND chips from Samsung and pass the savings on to customers, while SanDisk is stuck with the more expensive Toshiba chips and more competitive pressure.
"People are assuming Samsung is going to spoil the party," the analyst said, adding he doesn't believe Samsung will destroy pricing in 2004.
Mr. Chillara noted many of these concerns are "in theory" and that "a lot of if's have to happen" for all these scenarios to pan out.
The analyst added profit-taking may be another reason the stocks are seeing such pressure. Both companies saw run-ups prior to the holiday season, with SanDisk hitting a 52-week high in early November and Lexar recording its high in late October.
- Roger Cheng, Dow Jones Newswires; 201-938-5393; roger.cheng@dowjones.com |
