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

To: Sam Citron who wrote (27073)	12/3/2004 10:00:48 AM
From: Art Bechhoefer	Read Replies (1) \| Respond to of 60323

Sam, most professional investors do not make enough distinction between semiconductor markets--even the huge differences between markets for microprocessors, dominated by Intel, and markets for flash memory, much less the smaller subdivisions of NOR and NAND. Flash memory produced by SanDisk and certain competitors, including Samsung, is almost a commodity, meaning that the basic structure of the chip can be designed or produced in many ways, not just the patented methods of SanDisk. Certain parts of flash memory chips are patented. For example, controller designs, MLC, SD and other formats are protected by SanDisk patents, though there are other formats and designs that can be made without need for SanDisk patents. Flash chips made by Intel and AMD address different applications than those made by SanDisk. The two markets are somewhat different, though both types of flash memory may be found in wireless applications, such as camera phones. The real question to ask is not whether flash memory is a commodity, but rather, which flash chip makers are best positioned to make money on their products. Two of the key factors influencing cost are wafer size and "wire" size. It appears that Samsung has more state of the art facilities than SanDisk/Toshiba, but SanDisk/Toshiba has proprietary royalty producing technology to compensate. If one concentrates on the part of the market addressed by SanDisk (large file storage, up to 8 gb), SanDisk is highly competitive in a market growing faster than expectations of many professional investors. Why? Because, as noted above, many investors fail to draw distinctions between the various markets for flash memory, and the ability of different firms to operate profitably in these different markets. Many investors also fail to draw distinctions between the highly vertical integration of SanDisk (everything from wafer fabrication to sale of retail flash and products containing flash), compared with the more limited scope of Samsung, which, unlike its TV and cell phones, seems to produce flash memory for resale by other firms (e.g., Lexar and even SanDisk). The vertical integration of SanDisk, combined with its reasonably efficient production facilities and its patented technology, almost guarantees that SanDisk will have better profit margins than other firms operating in its particular markets. Art