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

To: Sam who wrote (8959)	1/28/2000 10:03:00 AM
From: Paul Senior	Read Replies (1) \| Respond to of 60323

Once again, I'll take an opposite position. On "concern", it won't be too much product, it'll be too little. Based on Aus's post 8895 quoting management report. The remarkable turnaround in Q4 of 1999 despite the impact of the earthquake which halted production and caused substantial losses of work-in-progress. Skipped away great this time. And easy now to slough over those four little words: "halted production " and "substantial losses". Let's just see how lucky we'll be after the next quake, if there is one. jmo. Paul Senior

To: Sam who wrote (8959)	1/29/2000 8:45:00 AM
From: Ausdauer	Read Replies (1) \| Respond to of 60323

Sam, Prophet and Thread, re: commoditization Regarding Sam's post #8959 I agree 110% with what you have said, Sam. I do, however, take exception to the use of the term "commoditization". I am not sure it applies directly to SanDisk as Dr. Harari has intentionally created open standards for CF and MMC. Thus, the notion of "commoditization" is quite intentional. It seems rather generous of SanDisk to intentionally "commoditize" its flagship product, CompactFlash, then turn around and "commoditize" its little sibling, MMC, but it is what the industry demands. I have wrestled with this concept and continue to wrestle with it given the protracted nature of the IP defense of the CF card assembly patents. In general I believe that "commoditization" actually works in SanDisk's favor. If you have the time or interest, you may wish to reread the following post from early July of 1999. Message 9977057 When the issue of "commoditization" comes up I often go back to read this. I guess in my own mind the concept remains a bit fuzzy. The points you make, Sam, are well taken. There may be several barriers to overcapacity in the flash memory market. I wished to make a couple of observations knowing I have little hard data to support my contentions. 1) As you have outlined, there have been lessons learned in the past as a result of overproduction in the DRAM market. The willingness to blindly finance and build production capacity "willy-nilly" must be tempered now by economic reform. Asia is still in the process of recovery. Capital is less plentiful. I think you make a valid argument. 2) SanDisk may be somewhat protected by its IP. This may deter competitors from stepping in in a hurried manner. Unfortunately, CF offered little in the way of resistance to competition and the growth in royalty/licensing revenues (from the Fall of 1998 to the current quarterly totals) is more linear than exponential. Thus, this offers a relatively thin cushion for SanDisk operations. No doubt that they are not resting on their laurels. 3) SanDisk and Toshiba will likely need to make margin adjustments without waiting for market pressures to push them down. Avoiding high calorie, fatty margins at the beginning may discourage other competitors. The manufacturing efficiencies and expertise that both companies bring to bear will give them some latitude in "dialing in" a comfortable level of profitability over the next 1 1/2 or 2 years while production remains constrained. Competitors will need time to think out a business plan and identify their battle zones. Eli has visions of being the highest quality, lowest cost manufacturer and his competitors have already given him a head start. Also, more diversified companies are facing growth in related areas which will diffuse investments in new capacity. SanDisk is focused like a laser on the flash storage market. There are several other points I wish to make, but will save them while I wait for a response to these remarks. Ausdauer

To: Sam who wrote (8959)	2/11/2000 8:55:00 AM
From: Ausdauer	Respond to of 60323

Sam and Thread, I have been giving a lot of thought to SanDisk's positioning in the consumer market. My wife tells me I wake her up in the middle of the night screaming "commodity" through clenched teeth while drenched in sweat. The current argument I have against CompactFlash being a commodity is as follows. First, we are still in a situation of undersupply. With each passing quarter the demand for CompactFlash continues to rise due to growth of the digital camera market and the early adoption of other consumer products using CompactFlash. Digital photography is now on Main Street, USA, but, as Eli says, we are only on the first block. Also, as the broad-based growth in the semiconductor industry continues and demand for many different varieties of flash memory increases it will become increasingly difficult for a diversified competitor to focus purely on flash production. SanDisk is dedicating 100% of its growth to the production of flash memory and has no distractions to derail this effort. So until signs of overproduction are "clear and present" I believe it is safe to remain very optimistic about SanDisk, CompactFlash and a variety of other products in the SanDisk pipeline. Second, CompactFlash is not DRAM. DRAM is a drab, black bar of silicon that Michael Dell buys and jams into your PC. It is lifeless. It is hidden from sight and inaccessible to the average computer user. It is not directed to the consumer audience for purchase. As such, assuming that performance is equivalent between manufacturers, price is the only feature which distinguishes DRAM "A" from DRAM "B". It is this dependence on price structure that relegates DRAM to commodity status. Third, performance is a key component of CompactFlash. Manufacturers of CF cards need to remain current with the "community standard" of product being offered by competitors in the field. In particular, they need to insure compatibility with all the end-user consumer electronics items. CF manufacturers must have reasonable product reliability including acceptable write speeds, error detection/defective cell elimination, security features and capacity while remaining confined to the current pricing range for the finished cards. The CF cards currently on the market appear to comply with these prerequisites. And as long as supply remains constrained, a certain degree of "forgiveness" for cost overruns/manufacturing inefficiencies exists. As WORLD CLASS, leading edge technology companies such as SanDisk begin to streamline production costs and take advantage of the substantial cost savings that result from the rapid and successful implementation of engineering advances, it is possible that some of the competing card assemblers will be unable to provide product while remaining within the boundaries of profitability. This will be especially true if SanDisk successfully defends its CF card assembly patents. Finally, regardless of the supply/demand equilibrium, for the next several years the consumer will continue to demand a lower cost removable memory solution for digital photography and portable computing. A reduction in ASP's and the cost per MB of memory is inevitable. I expect that these demands will occur in concert with sky-rocketing consumption and ongoing improvements in production efficiency. I anticipate the fall in ASP's will be gradual and tolerable, not sudden and nauseating. Also, as demand escalates, the impact of fixed overhead in production of CF will be less and the reduction in unit cost should be able to be absorbed. By the time CompactFlash is feeble, gray-haired and ready for the nursing home, one of its descendants will be rising to the occasion. And for the time being CompactFlash is a vigorous, energetic adolescent just waiting to prove itself to the rest of the World. All IMHO, Ausdauer