Hi Limitex,
I think they will. Actually, they have already started the process. They have no choice really, if they want to be a leader in this business. Even if under tough conditions, which are prevailing right now, if they can maintain the operating margins like last Q while the competition is losing money, it will be fine over the long-run with the new plant. The ROE will be lower at times but it will be fine over the loner-term. They just have to target the captive supply around 60-80% so they have cushion in case of a glut and the captive supply becomes 100% during over supply periods. Remember, oversupply hurts everyone, the key is who gets hurt the most in the short-run and bails out. The supply shrinks when companies get hurt and bailout and happy days return for the players remaining in the business! Also remember, when captive supply reaches 100%, the GMs are higher and it compensates for severe price declines to some extent. But I guess, things would never be the same as before. The new players are well accustomed to competition and they will divert the manufacturing lines to NAND or DRAM depending on the outlook. Once the dust settles, what will keep Sandisk alive is their IP portfolio, innovation and vertical integration. But they thrive only when there is a shortage of NAND components.
I don't know if anyone on the thread have tried to look at SNDK's performance if one removes the Roy/Lic Fees completely. I did some back of the envelope calculations sometime ago and was not too impressed with the numbers I got. I have always wondered if Toshiba/Sandisk partnership is an efficient manufacturer? And if they are, I don't think there are such great margins here (I meant in the NAND flash business). But as I said, I have found FV inefficient vs. say Samsung which has been minting money in Flash business even after paying royalty to Sandisk(but then who knows what their true costs are with the subsidies, etc.) I have found the margins below average considering they are vertically integrated. This company should have much higher margins even without Lic/Roy income- first, as a semiconductor manufacturing company and second, add to that margin for being a vertically integrated company packaging the chip o/p with the controller into a finished product. I would like to hear from some of you who are a lot more qualified than I am and get this discussion going.
-Pam |
