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Analysts divided on SanDisk's CE plan

Posted: 02 Mar 2007 ?? ?Print Version ?Bookmark and Share

Keywords:SanDisk? memory? consumer electronics? NAND? flash?

Amid questions about royalties from Samsung Electronics Co. Ltd, SanDisk Corp. told analysts earlier this week that it plans to place emphasis on being a vertically integrated consumer electronics (CE) supplier, according to sources who attended the company's analyst day. Analysts appear divided on the wisdom of the strategy.

Alex Gauna, an analyst with UBS Securities LLC, wrote in a research note published Tuesday that SanDisk described a new strategy of "becoming a vertically integrated consumer electronics powerhouse," moving away from its core competency of semiconductor engineering. "This strikes us as a very risky departure," Gauna wrote.

"I have my questions on that and what it means to the margin structure of the company," Gauna said in an interview. At the analyst day, he added, the company showed its gross margin figure compared to some premium companies that play in the consumer electronics space, such as Apple, Nokia and Motorola, in an attempt to show that the SanDisk has a premium gross margin comparatively. "My concern is that if they move farther down that road [toward becoming a vertically integrated consumer electronics vendor] their margins will diminish further."

But Satya Chillara, an analyst with Pacific Growth Equities LLC, disagreed, saying in an interview with EE Times that SanDisk's step toward the CE arena is "nothing new" and a "the right direction" for the company.

"I agree that the company is transforming more and more into a consumer electronics company," Chillara said. "But I think the key is that SanDisk has the NAND flash competency to compete with consumer electronics products based on NAND flash."

Chillara noted that SanDisk has already been offering CE devices, citing the company's introduction of several handheld multimedia and MP3 players at the Consumer Electronics Show in January. Chillara said he does not expect SanDisk to diverge into consumer electronics beyond those that emphasize NAND.

SanDisk, Gauna said, has demonstrated that it can be a brilliant technology company and brilliant semiconductor company. But the company has not necessarily distinguished itself as a brilliant end product company or brilliant marketer, he added. "When you look at some of what I would say are the brilliant marketing campaigns put together by companies like Apple and Motorola, we haven't seen SanDisk demonstrate any of that ability to date."

Responding to the rapid deterioration of NAND flash prices in recent months, SanDisk announced Feb. 16 a series of cost-cutting moves, including reduction of its global workforce by about 10 percent and decreasing salaries for all executives by 10-20 percent. Analysts have forecast that NAND prices could tumble by 65 percent overall this year, after dropping by about 60 percent in 2006.

- Dylan McGrath
EE Times

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