The flash memory space is a rough one for investors. On this side of the Pacific, SanDisk (NASDAQ:SNDK) has been the success story. Its increasing sales (and yes, profits) from products like memory cards and MP3 players have powered an impressive run for investors over the past year, though those of us who've held from the last highs have seen a pretty swift haircut.
That's because the space is prone to quick "corrections," or "panics," as I'd call them, whenever an analyst comes out with yet another prediction of a "glut" of flash memory, squawking that the sky is about to fall. Of course, the management at leading flash-memory companies like Samsung or SanDisk's partner Toshiba have been discounting the glut talk, pointing out that there are many new opportunities for growth in the flash industry. They've also been backing those words with deeds, investing billions in new fabrication plants.
Today, we get the first glimpse of products that some in the industry hope will someday soak up a large portion of that flash supply: Samsung laptop computers with NAND flash-based "hard drives." PCs featuring these solid-state drives (SSD) have been in the works for some time. In place of the spinning magnetic platters provided by companies like Seagate (NYSE:STX) or Western Digital (NYSE:WDC), these new PCs have solid-state disks made from flash memory.
The versions announced by Samsung today offer 32 gigs of capacity. If you're a bit underwhelmed, join the club. Capacities for SSDs considerably lag hard drives but cost a ton more. The Samsung notebook with a Celeron processor, 512 MB of RAM, and 32 gigs of storage goes for an incredible $3,700. A comparable laptop from Dell (NASDAQ:DELL) with a 40-gig conventional hard drive sells for $400 these days.
What flash laptops offer in exchange for that giant price jump likely won't prove useful to most users. The reputed hardiness of the SDD will be cold comfort to folks who smash their entire machine or drop a triple-fat latte into the top vents. The faster data access and writing -- granting a 25%-50% speed increase in program startup on a typical Windows XP system, according to Samsung -- may be worth something to some road warriors, as would advantages in battery life, but I doubt there will be too many fans of the capacity and CPU-performance trade-off. A glance deeper into the Dell website shows that $3,800 spent there can score you a 2GHz Intel (NASDAQ:INTC) dual-core laptop with 2 gigs of RAM and 100 gigs of hard-drive space -- in other words, a real screamer.
So what is Samsung up to? Proof of concept is my guess. Samsung is obviously at the bleeding edge here, but that's no surprise, because it's the world largest flash producer. It would dearly love to see flash replace hard drives everywhere. Flash capacities will rise and prices will inevitably fall, meaning that in the near future, 32- and 64-gig SSDs will become economical enough for use in applications where they truly offer an advantage.
How should investors react? With caution and an open mind. First off, SanDisk isn't a player in this particular party, so curb your enthusiasm there. Next, consider that the flash-makers may not be the ultimate beneficiaries of any eventual wider adoption. Equipment makers, or particularly consumers, may benefit most from a race to the bottom in flash memory prices.
Remember, Apple (NASDAQ:AAPL) paid up front to have Micron (NYSE:MU) and Intel ramp up production of flash memory -- in addition to snapping up a ton of Samsung's capacity. At the time, I suspected it might be much more than just supplying for iPods; I speculated that Apple might be creating "instant-on" computers by relegating portions of the OS now stored on hard drives to the faster flash memory. Of course, Flash could also make it into SSDs in other Apple gadgets and computers yet unseen.
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Seth Jayson has been raining on his own parade for years. At the time of publication, he had shares of SanDisk but no positions in any other company mentioned. View his stock holdings and Fool profile here. Fool rules are here.
