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Technology Stocks : WDC/Sandisk Corporation -- Ignore unavailable to you. Want to Upgrade?

To: Ausdauer who wrote (7088)	9/26/1999 11:22:00 AM
From: Art Bechhoefer	Read Replies (5) \| Respond to of 60323

Ausdauer and Thread: The latest aftershock may actually remove a lot of uncertainty. Reports from Taiwan already indicate that electric power is being rationed. With the latest shock, power should be even less available. So, assuming minimal damage to the manufacturing plant (the best case scenario), it is unlikely they can maintain production at earlier levels because of the shortage of electric power. The obvious conclusion is that shipments from this factory will be reduced until adequate supplies of electric power are available - perhaps from a week to a couple of months. As to the options, first of all, the loss of supplies and continuing demand will cause prices to rise. To the extant that SNDK still has product to sell, it can achieve greater margins on that product. Second, I can see a lot of problems trying to work with Toshiba, a competitor, to obtain extra supplies. This sort of reminds me of Polaroid, which allowed Kodak to produce most of its film in the 1960's and 1970's. Kodak "learned" the instant film technology from this working arrangement and later used it to enter the instant camera business on its own. Even though Polaroid recovered damages from Kodak for patent infringement, the court case was so lengthy, costly, and draining of management energy that it spelled the end of Polaroid as a major innovative player in photography. Third, in my view it is not appropriate for SNDK to pressure Lexar at this point. The ball is in Lexar's court and it's up to them to make an offer. If I were SNDK, however, I would make it known through legal counsel that the longer this lawsuit goes, the more costly its outcome will be for the plaintiff, and the more likely that SNDK will be motivated to go to trial and demand treble damages for intentional patent infringement. Finally, SNDK may want to review whether it is better to install emergency facilities to recover production in Taiwan or to expand production in China. The latter option might require that SNDK bring in new machinery to make the kind of chips they were making in Taiwan, which if I understand correctly are not the same kinds of chips they are making in China. I do not think that a momentary loss of market share is serious for SNDK, as they still receive royalties from whomever makes or sells the chips. And finally, the overall demand for flash memory is hardly likely to be affected. Whenever production resumes, the demand will be there. Art