Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

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

To: broozer who wrote (27128)	12/13/2004 6:00:20 PM
From: Art Bechhoefer	Read Replies (1) \| Respond to of 60323

broozer--Lexar stated earlier this year that they were not bound by any agreement to purchase their flash memory chips from Samsung. Lexar, on the other hand, has an arrangement with Samsung, where Samsung can use certain Lexar IPR in its chip making. In that sense, if Samsung lowers its chip prices, Lexar gets lower unit royalties from Samsung. Lexar, in addition, must still meet the prices that SanDisk has established at the retail level, which may result in Lexar's margins being squeezed as well. In theory, if there is a glut in supply of flash memory, a fabless producer, such as Lexar, has an advantage over a vertically integrated producer such as SanDisk. However, that is too simplistic a view. What appears to be happening is that new batches of flash memory are being produced at lower cost, forcing sellers to reduce prices in order to retain or increase market share. The worst case scenario for a fabless producer is to be caught with too much old inventory, since newer model chips cost less. This is what happened back in 2000, when SanDisk received double orders from companies like Nikon, which then cancelled the extra orders when it became clear that the apparent shortage failed to materialze. SanDisk had to write down considerable inventory as a result. I personally like the business plan that SanDisk has adopted, involving the production of a variety of flash memory cards for specific applications. They have extra rugged models designed for wide temperature changes and uses where reinforced cases are essential. They have extra fast read/write units for capturing large size files quickly, and cheaper, lower end units for one-time archival use. Every potential market niche is covered in a manner that would reduce the potential for oversupply of a particular type of flash memory. To see how this strategy works, we'll just have to wait for the next financial report. Art