On Monday, memory chip maker SanDisk pre-announced its 4th quarter earnings results and said it expects revenue to be substantially lower than previously forecast, citing weaker-than-expected demand for its retail products and flash memory storage chips. After shares plunged 14%, analysts across nearly every single investment bank rushed to defend the stock, claiming the headwinds were temporary and the sell-off presented a compelling buying opportunity. With all due respect to the analysts, I think SanDisk is in deep trouble. Here’s why: SanDisk’s flash memory chip (otherwise known as NAND), has very much become a commodity. There’s nothing truly proprietary about it, and that’s why one of SanDisk’s largest customers – Samsung – has decided not only to bring its chip production in-house, but also attempt to sell outside and compete directly with SanDisk. SanDisk now has a bevy of competitors infiltrating the memory chip space from all ends, compromising the company’s volume and pricing power. The end result is serious pressure on SanDisk’s margins, a trend that should not only persist but intensify in the coming years. I believe we’ve seen the peak of SanDisk’s rein atop the memory chip space. Its best days are far behind them.
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