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SanDisk (SNDK)Stock (Consumer Products Industry, Semiconductor- Memory Chips Industry)
 The market for NAND memory is also correlated with that of DRAM (a different type of memory used in PCs) because several major memory companies, including NAND leader Samsung, fabricate both kinds interchangeably. In times of excess DRAM supply, for instance, memory makers often shift their manufacturing capabilities to NAND and vice versa. As a company dependent on primarily NAND, SanDisk has greater exposure to the cyclicality of that particular market. Sandisk has been suffering from flash oversupply since 2007 and Q2 2008 earnings showed no signs of remedy. On-hand inventory increased 15% in the quarter and Sandisk is forced to slash prices in an effort to get rid of inventory. Flash memory—-both removable cards and internal types-—is used widely in cell phones, digital cameras, media players and in “thumb” drives. As a result, the fortunes of the company are closely tied to the popularity of such devices and consumers’ demand to store their pictures, video, songs and other digital media. One notable device is Apple’s iPod, to which SanDisk’s fortunes are inextricably tied. SanDisk’s own branded media player, the Sansa, is a distant second to the iPod in terms of head-on market share for media players (>70% versus <10%). However, SanDisk and the rest of the flash market are influenced by the large success of the iPod, which drives a large portion of overall demand for NAND. When new generations of Apple iPods or iPhone need flash memory parts, SanDisk and other NAND providers profit from the rise in overall demand and prices. SanDisk unveiled the flash based Vaulter Disk - a device that enables faster launching and loading of software on laptops and on personal computers. SanDisk envisions the Vaulter as a unique data storage solution, a compromise between the full and expensive solid state drives (SSDs) and the conventional hard drives, which are considered by many experts to be the bottleneck of modern computing. It is yet to be seen whether the Vaulter will gain popularity, something which did not happen for similar devices, such as the Samsung hybrid hard drive (a device combining flash memory and a mechanical disk). SanDisk launched the Vaulter Disk at CES 2008, which took place in Las Vegas in early January 2008. The device will initially be offered to original equipment manufacturers (OEMs) in capacities ranging from 8GBto 16GB (no price info was available at the time of this writing).
[edit] BackgroundDr. Eli Harari, one of the world's authorities on computer memory at the time, founded SanDisk in 1988. Since then, it has become a world leader in flash memory, a non-volatile computer memory type that can retain its stored contents without a power source. In addition to its non-volatile nature, flash memory became extremely popular because it enables the storage of large amounts of data in very compact units. Today, flash memory is used in a wide array of devices including cell phones, MP3 players (including many iPods), cameras, video games and as standalone "thumb" drives. SanDisk has become the world's second largest supplier of flash memory data storage, growing 50% annually since 1998, with annual revenues aproaching $4 billion in 2007.  [edit] ProductsSales of SanDisk products accounted for approximately 88.5% of total revenue in 2007 (the other 10% came from licensing and royalties). [edit] Flash Memory Products
[edit] Customers[edit] ConsumersSanDisk's products are sold in over 222,000 retail stores across the world. Retail sales accounted for approximately 63% of SanDisk's total revenue in 2007. Consumers purchase flash memory products from SanDisk in various forms: removable memory cards and sticks for digital cameras, cell phones, MP3 players, video game systems; USB flash drives; and the SanDisk Sansa portable media player. [edit] OEMsSanDisk provides both removable and non-removable flash memory to original equipment manufacturers (OEMs). Clients include major digital camera manufacturers, mobile phone manufacturers, as well as companies that produce other electronic devices. In 2007, OEM sales comprised 37% of SanDisk's total revenue.
[edit] Trends and Forces[edit] Device MarketsA majority of SanDisk's revenue comes from sales of flash memory products for devices, including digital cameras, mobile phones, portable media players and video game systems. Subsequently, the success of these devices is integral to SanDisk's business. Also there is a growing trend of converging these devices into one, i.e. iPhone. In these convergant devices, making sure the device has a minimal power supply is very important considering how easy it is for all those features to suck down the power. Solid state drives, in which Sandisk is the leader, have low power requirements compared to rival technology such as hard drives, and are ideal for these types of devices. Despite its Sansa venture, SanDisk has little influence on the markets for these devices and is at the mercy of consumer device trends. On the positive side, many of SanDisk's removable memory formats work across a variety of devices, in effect creating a buffer against most particular devices or platforms. [edit] iPodSanDisk has a give and take relationship with the category-leading iPod. Apple's dominance in the media player market means that all flash memory manufacturers are at the mercy of iPod's success. On one hand, SanDisk has taken the iPod head on with its Sansa offering--in effect, removing itself as a potential OEM supplier to Apple. However, Apple's demand drives the overall market price for flash memory, and SanDisk actually benefits from the success of the iPod and iPhone. [edit] SanDisk SansaA provider of flash memory parts to MP3 player manufacturers (i.e., OEMs), SanDisk moved to produce its own player--called the Sansa--in 2004. The SanDisk Sansa has become the second best-selling portable media player, but it and all others in this category trail Apple's dominant iPod products, which owned over 70% of the U.S. market in 2006. The Sansa utilizes both removable (i.e., cards) and non-removable (i.e., built-in) flash memory technologies, creating leverage across two of SanDisk's core product offerings. The company has partnered with Yahoo! (YHOO) to create a product for downloading songs, akin to Apple's iTunes. This partnership for content ties Sansa's fortunes with that of Yahoo!, whereas Apple owns both the hardware (iPod) and content (iTunes). [edit] Licensing and Royalty MarketSanDisk, a pioneer of the flash memory industry, holds the rights to much of the technology behind flash memory products. It is the only company with rights to produce all major formats of flash memory cards worldwide, including CompactFlash, SD, miniSD, Micro SD, x-D PictureCard, and Sony's Memory Stick. Companies that use this technology in their own manufacturing pay royalties and purchase licenses to SanDisk's technology. About 10% of SanDisk's annual revenue comes from licensing and royalty revenues. [edit] Memory MarketsSeveral of SanDisk's major competitors manufacture both flash memory (or NAND) as well as dynamic random access memory (DRAM, a volatile memory used in PCs), because of the relative ease of switching fabrication processes. As a result, DRAM and NAND memory markets have related cyclicality due to dynamics in overall supply production and customer demand. In times of excess DRAM supply, for example, memory makers often shift their manufacturing capacity to create NAND memory (which happened in 2005) and vice versa (the situation in 2006) thus minimizing the industry swings. Unfortunately for SanDisk, memory producers often create detrimental oversupply in the market and drive prices to dangerously low levels. In 4Q07, an oversupply in the chip market drove Sandisk prices down 58% compared to a year earlier and in Q1 08 continued oversupply drove prices down 61%. This oversupply occurs because production facilities have become extremely expensive and memory companies produce at near maximum output to recoup the large fixed costs of building the facilities. Because SanDisk manufactures primarily NAND flash memory, they have greater exposure to the cyclicality of that particular market. [edit] Will Flash Replace Magnetic Memory?One possible boon for SanDisk's NAND business is the potential for traditional magnetic hard disk drives (HDDs) to replace flash memory. Flash is faster and uses ten times less energy. The price per unit memory is much higher for NAND memory, but as the two storage technologies come close to price parity, HDD loses its price advantage. SanDisk would then be in a position to take share from companies that focus exclusively on hard drive production, including Western Digital (WDC) and Seagate Technology Holdings (STX).
[edit] CompetitionThe flash memory industry is very volatile--no pun intended. Firms producing one kind of memory often enter and exit the industry due to market trends and cycles. Perhaps more importantly, the competitive environment has driven increasing consolidation and complex dynamics between competing firms:
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