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Friday, September 01, 2006

Sandisk Has No iPod Killer

Stocks: (MSFT)(AAPL)(SNDK)

Sandisk has had a couple of reasons to do well lately. According to the Associated Press the “glut” in flash memory chips may be ending. The news service quoted JP Morgan as saying that while pricing has come down as much as 60%, it is now becoming more stable as demand for portable devices is rising.

Sandisk’s stock, which was below $40 in early July, now trades at $59.

The other thing that has investors all hot for the stock is the company’s announcement that it is building a new competitor to the iPod. Sandisk has about 10% of the market, well behind Apple. The company also announced that it was buying Msystems. The company builds flash memory for portable devices like phones, and Wall St generally liked the deal.

The best news from Sandisk was the results of its second quarter. Revenue rose 40% to $719 million and Q2 profits were up 36%. Improved pricing of products was given as the major cause.

But, Sandisk’s run may be over for now. The expectation for more firm pricing in the flash chip market is already priced into the shares. And, the company’s move to get more of the iPod market will probably fail.

It is unlikely that Sandisk is willing to do what Microsoft will with its new Zune multimedia product. To get share from Apple, MSFT is willing to spend hundreds of millions of dollars. The product will be out for the holidays. That leaves Sandisk in the middle between the market leader and a huge company that is willing to spend exorbitant sums to get into the new market. Being Sandisk won’t be fun.

Douglas A. McIntyre

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