Will SanDisk Sour Apple's Tune?

BusinessWeek profiles SanDisk (SNDK) efforts to take the $2.3 billion "into what appears to be a no-win attack against Apple's (AAPL) dominance of the digital-music player market?" One reason is "in the market for those players that use flash memory -- such as Apple's iPod nano and shuffle -- Sunnyvale (Calif.)-based SanDisk has something that most other suppliers don't: Its own factory for making flash memory. That means SanDisk can supply itself with one of the most expensive and critical MP3 components at cost."

The article notes that "of all SanDisk's flash-memory chips, 70% come from three Japanese chip factories it jointly owns with Toshiba. The remaining 30% come courtesy of its own supply contract with Samsung. When demand is high, Samsung's capacity fills in the gaps. When demand is low, the Samsung capacity is the first to be cut back."

The SanDisk Sansa line is being positioned as "an alternative player with a wide range of features at a price where Apple only offers its stripped-down iPod shuffle, which has no screen."

Michael Gartenberg at JupiterResearch said, "SanDisk's e-series of players are very nicely designed, and in fact it's probably one of the nicest players on the market. Its problem is that it doesn't go by the name iPod. SanDisk is the no. 2 two manufacturer in the market, and it's going to take a lot of effort to get its message out to consumers."

One thing that Apple has going for it is that retailers "love selling all the accessories that have come to populate the iPod economy: leather cases, speaker systems, headphones, and what not." Gartenberd added, "The attach rate of accessories to iPods is really high, and the retailers love that business."

The article writes SanDisk thinks the market is heading toward the memory-card enabled music phone anyway, and states that "SanDisk's microSD cards -- about a third of the size of a postage stamp -- are aimed for wireless-phone use in capacities going up to a gigabyte. The company sold 13 million cards for handsets last quarter. Compare that with the 8.5 million Apple sold in its most recent quarter."

And the SanDisk memory card also fit in the Sansa MP3 players so they got that going for them as well...