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

To: hueyone who wrote (13467)	8/1/2000 8:45:54 AM
From: Ausdauer	Read Replies (3) \| Respond to of 60323

Huey, thanks for your thoughtful reply about ADC. I think there is still a lot of misinformation out there and you were able to locate some key information in the investment letter you received from your broker. The type of detail included in your last post is extremely helpful in clarifying SSTI's business model. A few weeks ago I predicted that the ADC "single disk" design actually required a multichip solution (aided by some quick math by Wily) and that SSTI would not use their own foundry partners for the flash storage portion of the product. I stated it was "inconceivable" that SSTI could manufacture ultra-high density flash with their current technology. My suspicions were based on company guidance (SSTI's last 2 c.c.'s). Perhaps "inconceivable" was too strong a word. "Unlikely" or "improbable" or "implausible" or "dubious" would have been appropriate synonyms. This is not to disparage SSTI's accomplishments, rather to point out the rather vague or misleading information in the SSTI press releases. ADC is a multicomponent product. ADC is a mass storage product utilizing flash memory. SSTI is not able to produce the mass storage component themselves and will require their assembler (Apacer) to purchase it on the open market. This is a similar relationship that Lexar Media has with competing package assemblers. They sell their "proprietary" controller to competitors. The competitors purchase ultra-high density flash from Toshiba or Samsung or Hitachi and then package it into a lower margin final product like a CompactFlash card. This relationship is good for the individual component manufacturers as it does not require them to move the final product or to establish a retail channel. However, the suppliers continued success depend wholly on the assemblers ability to keep inventories moving, thus creating demand for more "high margin" components. In this instance the assembler is taking on risk by purchasing the needed "high margin" components and creating a lower margin final product. In return for this risk I suspect that Apacer required SSTI to take an equity interest in their company. Note that no dollar figure has been attached to this 10% equity stake. This is another piece of information that needs to be added into the final profitability of ADC. I see these details were also left out of the Schwab investment letter. If you wish to know how successful this model is I might inquire about SSTI's profit margins on their CompactFlash cards. I suspect a similar relationship exists whereby they make the controller and contract out assembly, again placing the burden of profitability on the assembler. _____________________________________________________________________________ Huey, you stated... "SSTI has created a single module design that will integrate SSTI's ATA controllers with NAND high density data storage flash. The SSTI controllers are based on SSTI's patented SuperFlash technology. The high density NAND flash may or may not involve SNDK IP." We have gone from a "single chip" to a "single disk" to a "single module" design for ADC. The reason I take offense to this statement is because it leads one to believe that SSTI manufactures the final product in one fell swoop. Also, I am more interested in the ATA-controller technology as it relates to SanDisk's IP, not the ultra-high density flash component. It would be the embedded flash equivalent of the CompactFlash assembly patents. "This 7/27/00 CSFB report (available at Schwab on PDF) also notes that SSTI will be selling its ATA controllers to sub-assemblers (read Apacer) who SSTI has licensed to manufacture its ADC design. So the sub-assembler will be acquiring controllers from SSTI and the NAND flash from Toshiba, Samsung or any other number of high density NAND flash producers including SNDK." SSTI was apparently asked to take an equity interest in their "sub-assembler". This could indicate that the sub-assembler desired SSTI to take an active role in sharing risk with the product line or it could be an indication of SSTI's belief in the investment potential of Apacer. "The description of SSTI's flash cards in the company web site says its CompactFlash cards leverage the company's patented ATA controller technology and flash memory design expertise to offer unprecedented read/write data transfer rates to the flash memory. I am certain this description is referring to SSTI's own patented technology and not to someone else's...I am interested in any information you have regarding crosslicensing between SSTI and SNDK. Is SNDK or SSTI actually receiving payments from one another and do you have any idea how much? You referenced SSTI licensing SNDK technology for its flash card assortment." Huey, these arrangements are highly confidential. In any case, if SanDisk is allowing SSTI to use the disk drive emulation patents in exchange for the licensed use of SuperFlash it would seem unlikely that SanDisk would be taking a substantial equity interest in Tower Semiconductor. I suspect, but am not certain, that SSTI pays SanDisk for their use of SanDisk's IP in SSTI's CompactFlash assortment. I am also uncertain if ADC utilizes SanDisk's disk drive emulation technology. I suppose these are questions that could be asked of SSTI's management. Huey, I think that the devil is in the details. We are just scratching the surface on the inter-relationships between the various companies involved in producing the flash products we are interested in. Aus