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

To: limtex who wrote (2987)	5/15/1998 10:36:00 AM
From: Jerome Wittamer	Read Replies (3) \| Respond to of 60323

Here is an analysis of the situation as a result of falling component prices, someone confirmed to me that prices were indeed plunging. Silicon wafers are a flash component. What the other flash components are,that I don't know. I don't think micro-controllers can be called flash components. We know that SanDisk purchases silicon wafers from Matsushita and NEC and that these have to be ordered well in advance, their price is thus fixed months before flash memory cards are delivered to end-users. The price of wafers is denominated in JPY. Now SanDisk has a stake in the UMC foundry in Taiwan where it uses some of those wafers in order to produce flash memory cards. Short-term, since some other players in the flash memory business are more flexible, they can transfer the benefit of lower wafer costs over to their clients whereas SanDisk must follow the lower pricing and see its gross margins erode materially. This occurs while at the same time ASPs are already declining as a result of falling manufacturing costs and big supply of low margin-lower capacity cards. As a consequence, earnings would be negatively impacted. To what extent, I don't know. It could be minor and it could be important. But this negative impact would disappear in the 3rd quarter. Now in relation with the UMC and falling costs in Asia, my understanding is that the price of raw materials has dropped. So has the price of semiconductor equipment produced in the region. As regards labor costs I don't think it's changed much since Taiwan has remained relatively isolated from the Asian turmoil. Overall, I am persuaded that lower prices are greatly beneficial to the flash memory industry. These drops in the price of flash memory are not new but they have intensified. This is a sign that the industry is headed towards (a distant) maturity where flash memory will become pervasive commodities.