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Tech Sector: NAND Flash Memory Is Changing, So Which Names Should You Play?


NAND is changing and SSD is the looming catalyst, but there simply aren't that many publicly traded players in this space. Here, why SanDisk stands out.


I have always tried to avoid investing in tech commodity plays. But there are times when even commodity products run into a new product cycle so strong that it justifies going along for the ride. One such case may be emerging in flash memory and the advent of solid-state disk drives.

Back in June I argued that SanDisk's (SNDK) stock looked pricey relative to the expectations for the deployment of SSDs at the retail level; since then the stock has gone up and down, but has basically settled approximately $8-10 below where it was at the time. Back then it was unclear when SSDs prices would come down enough to start catching on with notebooks and PC OEMs. But after listening to the conference calls by SanDisk, EMC (EMC), Applied Materials (AMAT), and OCZ Technology (OCZ), the picture has changed, and it may not be too early to jump on board what may be one of the biggest advances in PC hardware in a long while.

SSDs remain expensive for the average consumer, with prices for a 250 GB drive still hovering around $600. But that's already down approximately 25% from last year, and all indications are that by early next year prices will drop another 25%. It is tough to tell at which price point SSDs will begin to catch on with consumers, but once users realize the advantages in speed and reliability, my guess is that such a price point is not too far away. This means that from a tradable cycle standpoint, now may be the time to start legging into the main players of this new wave.

Let's take a quick look at the commentary from SanDisk, Applied Materials, and OCZ conference calls.

From SanDisk's call on 10/21/2010:

... As for SSDs, these are transforming enterprise storage as we speak, and we are within one or two generations from their mass adoption in notebook PCs and other thin clients. To be a market leader in SSD, you need to have access to leading-edge high quality flash, shippable in high volumes, at a competitive cost, applying sophisticated know-how for managing highly scaled NAND, having the requisite patents, and building on strong OEM credentials. SanDisk has it all, and we are working diligently to gain leadership position in this space....I would say, in the fourth quarter this year, SSD is not where it was thought it would be a year ago, because of the pricing during the this year.

From Applied Materials' call on 11/17/2010:

Tablets are also leading the transition to solid-state storage. And as a result, we expect NAND bit growth to be in the range of 80% to 90% next year. This is projected to support more than $6 billion of equipment spending, and NAND investment will likely surpass DRAM for the first time.

From OCZ's call on 10/11/2010:

On the PCI-E front, our award-winning RevoDrive entered mass production during the quarter. And while it was launched primarily as a solution for high-performance prosumer-type desktop PC applications such as video and audio editing, it has seen substantially higher than expected adoption in the server and workstation market, which drove demand in excess of supply during the quarter. We intend to move aggressively to capitalize on these trends, and we then plan to increase the supply of RevoDrive SSDs in the third quarter.

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Positions in EMC, AMAT, SNDK,
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