The only thing that worries me is that flash memory is fast becoming a commodity product, rather than a unique, proprietary product, for which profit margins are always higher. For a more well known example, look at IOMEGA and its ZIP drive. This was a hot seller and market leader, pushing IOM shares into the stratosphere, until competitors started launching products that were different but still did the same job of backing up hard drives and storing files in convenient removable disks. Once the competition came in - Syquest, Imation, etc. - prices fell, and IOM shares went from about 40 to 5. The stock remains around 7. The product, notwithstanding its patent coverage, remains nothing more than a commodity.
When you invest in a commodity, you look for different features than you do with proprietary products. For one thing, you need the low cost producer. So far, SanDisk seems to fulfill this criteria. You also need marginally better product performance (read-write speeds, capacity, etc.), and again, SNDK seems ahead here as well. Ultimately, a company like this can only maintain its edge by its ability to hire and keep really excellent engineers and managers. When I visited SNDK last October, I was impressed with the quality of management, and still am. But if any of these fundamentals (and I include here obviously more than the strict financial kinds of fundamentals) should change, then I would want to reevaluate the stock. Art |
