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February 18, 2005
SNDK, LEXR, Friday, Feb 18, 2005 06:56:27
Yesterday, after attending to personal matters, I received a comment from Billzer in the PacNorthWest, which I'm hoping gets a thread started here. That's because Sandisk, Lexar and Kodak are the basis of my first ‘Big Picture' trading idea of 2005, which is flash memory. By Big Picture, I mean a concept of significant size that will "cover several years, with multiple iterations, elements and cross-cutting themes". It warrants your time to develop a good working knowledge of the topic, which helps you become an effective trader.
Other Big Picture threads could be Gold, or say the x64 advanced operating systems that Microsoft and others will soon be introducing that will bring such incredibly advanced performance and scalability to video and database applications on our desktops that I tremble in excitement just noodling on that topic.
I'm hoping knowledgeable readers get involved in my flash memory thread here because goodness knows I'm no expert. My Kodak flash memory is already full up and I'm trying to figure out what to do next. I'm really no expert!
But I'm smart enough to see a perfect storm in the making, which is ideal for trading.
So, to begin, yesterday Billzer wrote:
"Up front, let me say I'm a SNDK owner. With that said, I'd like to make the case why SNDK deserves better than a 50-50 with LEXR long term.
1) Royalties - SNDK hold IP for this product - 2004 was $174m, a 79% increase over 2003.
2) Vertical integration - SNDK owns the whole channel. They maintain a 70% captive vs. 30% non-captive supply of NAND. They control their costs on captive and use none to increase market share where they choose (willingly sacrificing what is a 37% operating margin anyway), LEXR is at the mercy of suppliers. They sell at a loss because SNDK sets the price, make a profit - then watches LEXR bleed.
3) Market share - SNDK is the undisputed retail market share champ in the NAND space across their product lines, and they have many major OEM partners to boot.
Sure, I'm rootin' for my boys, but LEXR just isn't a compelling story long term. SNDK pumps its significant royalty stream into R&D, starts price wars at will -- protected by their significant margins -- and just watches LEXR suffer. KODAK? Nice partnership unless you consider they lose money on each card they sell.
SNDK is looking over its shoulder, but it's looking up at the likes of AMD, Intel and Samsung - not down at Lexar."
Now, I know there are others who would like to express a viewpoint, so you can attach comments here and I'll post a thread in the Big Picture category on the sidebar. I'll also give some thought to how to best publish an interactive thread on this website.
Have a great day.
Posted by Posted by Bill Cara on February 18, 2005 06:55:00 AM | Category: 45 Info Technology , Flash Memory
Bill-read your blogs daily with great interest. How do I learn more about your strategy of puts and calls? thanks
Posted by: guido60![[TypeKey Profile Page]](http://www.billcara.com/nav-commenters.gif)
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February 18, 2005 8:10 AM [link]