RE: Commoditization
So far, SNDK's market segmentation strategy has been pretty effective in combatting this trend. There are hundreds of SKUs of different types and sizes, with new form factors being invented all the time. This typically forces the consumer to buy new flash memory for each new digital device, instead of recycling the same flash card from one device to another. Premium cards are given characteristics geared to optimize performance for particular devices, e.g., faster write times to reduce latency between digital photographs in Ultra product. As long as there is no homogeneity, there is no commodity, and Sandisk can maintain a semblance of pricing power.
To be fair to Coster, some of the sustainability issues were addressed in the risk section of his report [quoted below], although he does not, for example, present a detailed analysis of barriers to entry.
Aggressive pricing by competitors in the OEM or retail aftermarkets could be a potential negative. SanDisk has taken aggressive price action, unilaterally, in the past, which has impacted gross profitability in the near-term and we would view such action as a potential negative development if not planned and executed well. There are risks associated with technology, and the possibility that a competitor (specifically Samsung) introduces Flash wafers that have significantly better price/performance characteristics. We view the entry of new competitors (e.g. ST Micro, Infineon) as a risk to the supply / demand balance, possibly leading to further rapidly declining ASP/megabyte and reduced gross margins. SanDisk's transition to 70nm could disappoint (yields and timing) and the company could experience cost and schedule over-runs in building out Fab3 in partnership with Toshiba.
Finally, we could view market share losses as a cause for concern.
Sam |
