Sam and Craig (#5506) and Thread: While some people have lumped SNDK with other semiconductor stocks, others have chosen to associate it with disk drive companies, such as Western Digital, Seagate, and Iomega, none of which have been doing too well lately. For that matter, the semiconductor stocks are also under pressure from a combination of competition and overcapacity in a market where growth in unit sales of these items seems to be slowing down. Whichever of these categories an investor chooses will lead to a missinterpretation of the potential for SNDK. Both disk drives and semiconductors (except for certain specialty semiconductor companies making custom chips) are becoming commodity businesses, where profit margins are lower and the only successful companies are the lowest cost producers.
Companies like SanDisk are different because they survive on proprietary products, as opposed to commodities. Proprietary products carry much higher margins and their companies deserve justifiably much higher price-earnings ratios. In the telecommunications area, QUALCOMM is the prime example of what happens (eventually) to companies with proprietary products. The only problem is that it takes awhile for the average analyst to understand the difference between commodity and proprietary product, and that is why companies like SanDisk lag the overall market.
With the overall market at extremely high valuations, particularly many technology/internet type stocks, my hunch is that prudent analysts are going to start looking around for better valuations, get rid of their former high flyers, and end up looking more favorably on the reasonably priced companies with unique products. Art |
