Watching SNDK, Sandisk

Posted on October 4, 2005 , filed under Stocks | Print This Post

SNDK, SanDisk Corporation engages in the design, development, and market of flash storage card products used in various consumer electronics worldwide. Its products include flash cards, Universal Serial Bus, flash drives, and digital audio players.

I’m very bullish on SNDK. Its a great company with great timing. I use Sandisk memory products in a number of my electronics. Nearly every new electronic device requires, or is able to utilize, some sort of flash memory for storage.

Here’s the but.

While the business and timing are both perfect for now, I believe the stock price has risen a little too aggressively.

Sandisk reminds me of another company, MU Micron. Some years ago analysts were bullish on Micron for the very same reasons they’re bullish on Sandisk. They saw no drop in memory usage for PC’s and notebook computers and only increased consumption. What analysts failed to predict is that price margins on memory would erode so quickly. I see the same happening to flash memory. Sandisk already has to cut prices in order to maintain its market leading position. As flash memory becomes increasingly ubiquitous, the i’ll effect is that prices and margins will erode to a point where it will be difficult to squeeze a profit from Sandisk’s manufacturing costs.

I also see a lack of interest from consumers as flash memory storage space increases beyond the use of today’s applications. Since July shares in the company have doubled in price. Short term, if SNDK passes $65 by the end of this year, I would look into shorting shares of the company. Long term, I am very bullish on the company and would buy the stock at under $30.

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