SanDisk rides high on popularity of flash memory
DIGITAL-CAMERA BOOM HELPS COMPANY THRIVE
By Jon Fortt
Mercury News
Eli Harari hears the whispers that say the days are numbered for his gadget-memory empire. But he seems more immune to hype than the typical Silicon Valley chief executive. He is not a marketer, he's a physicist.
SanDisk, the Sunnyvale company Harari founded 15 years ago, is doing quite well. Sales were $541 million in 2002, up 48 percent from the year before -- and 2003 is looking even better. The stock price has nearly quadrupled from a year ago. SanDisk makes flash memory -- little chips the size of matchbooks and postage stamps that provide data storage for mobile electronics.
``They decided to hang their hat on the memory-card business before it took off,'' said Jim Handy, director of non-volatile memory services for Semico, a research firm. ``These guys are only in the position that they're in because they have done a lot of research and development.''
Though this tech environment is wary of so-called sure bets, SanDisk seems to be the sure bet almost everyone likes. Harari founded the company based on his patented ideas on how removable flash memory could provide reliable storage, and the company has powered itself on engineering smarts ever since, breaking new ground in flash-memory research and selling patent licenses to competitors. Harari said SanDisk's license revenue is now larger than its research budget -- which means that SanDisk's competitors are paying for its product development.
Many of the digital gadgets on the market today use the removable flash technology that SanDisk pioneered, including high-tech music players, cell phones and digital cameras. This year, SanDisk signed a pact with Sony to be the only outside manufacturer of Sony's Memory Stick Pro flash format.
``SanDisk has the technology that Sony doesn't have,'' said Yumi Fraley, U.S. marketing manager for MemoryStick. ``It's going to speed up our trying to standardize the memory-stick format and expand the market.'' Consumer-electronics manufacturers who want to build Sony's Memory Stick format into their products can now deal with SanDisk, rather than risk sharing too much information with Sony.
Digital-camera boom
Skyrocketing sales of digital cameras mean big business for SanDisk -- the cameras need flash memory. Industry estimates for digital camera sales this year have shot up from $35 billion to $50 billion. Consumers like them because they're convenient and don't need film.
Critics can find chinks in SanDisk's armor. The company is a one-trick pony -- it does nothing but flash memory -- and these days flash has a lot of critics. Some engineers say flash memory is not fast enough to handle futuristic tasks like streaming video into a cell phone. Others point out that small hard drives from companies such as Toshiba, Hitachi and Cornice threaten to take the place of flash memory in MP3 players and high-end digital cameras.
There is real-world evidence that flash doesn't own the portable-storage world. Apple Computer's iPod, the coolest music gadget of the moment, uses a small hard drive instead of flash to hold from 15 gigabytes to 30 gigabytes of music. Apple marketing chief Phil Schiller told the Mercury News the company has no plans to use flash memory in music players because the price and size of hard drives keeps dropping.
Harari does not claim that flash memory is invincible. He says it is just the best technology available. He said SanDisk is on the lookout for the mind-blowing technology that will one day beat flash at the portable electronics game, so that the company can buy it and build the future. But nothing so far has impressed him -- and that tells him flash is secure for four or five more years.
``We are not wedded to flash,'' Harari said. ``But we do not see a technology that can replace it from a cost perspective. So long as flash can move at the rate that it is now, it does not have a competitor that can displace it.''
Harari is not worried that Apple's product plans do not include flash memory. He said that in a few months, economics will tempt Apple to reconsider. ``The disk-drive iPod-like device is going to have a difficult time competing with flash,'' Harari said. ``Within two years, you will be able to buy a 512-megabyte flash device for less than $100.''
Flash costs less
And there, he said, is the advantage of flash. His customers argue with him over whether they will buy flash chips for $6 or $6.50, he said, and even the cheapest hard-drive technologies start at nearly 10 times that. The capacity of SanDisk's flash memory chips steadily expands with Moore's Law, which says that every year or so you'll get twice the storage for your money.
Other companies are still hard at work to unseat flash. One of the latest efforts, Magnetic Random Access Memory, combines characteristics of a memory chip and a hard drive. In MRAM, the chip creates tiny magnetic fields that the computer reads as a ``1'' or a ``0.'' Proponents say that this type of storage could be faster than flash, and possibly smaller. IBM and Infineon Technologies are working together on an MRAM chip, but so far the capacity of prototypes is just 128K.
``I have been around the industry long enough that I have a very jaded view of new technology and its ability to displace plain old silicon,'' said Handy at Semico. ``So many companies have tried mixing materials with silicon and they have not been able to get anywhere with it.''
IDC analyst David Reinsel agreed, saying that hard drives would continue to do well in devices where either size and mobility were less important, or tasks like high-quality video playback were central.
``Flash is a pretty safe bet,'' Reinsel said. ``It's only going to be the really high-capacity applications that are going to be a secure area for hard drives.''
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