Magazine

A Memory Card You Won't Forget


Eli Harari looks every bit the proud papa as he holds up a stylish Samsung cell phone, an impossibly tiny digital music player, and then the sleek Sony (SNE) PSP handheld game console. No, his company doesn't make any of these nifty products. Yet SanDisk Corp.'s (SNDK) memory cards are a perfect fit for all the gadgets, to store music, photos, video, and other sensitive data. "All these digital devices have an absolutely voracious appetite for our flash memory," he says.

Harari is sitting pretty these days. SanDisk is the worldwide leader in removable memory cards, making the low-profile, Sunnyvale (Calif.) company one of the biggest beneficiaries of the soaring demand for cell phones, digital music players, digital cameras, and game consoles. Revenues have surged an average of 70% over the past three years and are on track to rise 19% this year, to $2.1 billion. Its stock is up 40% over the past year, to 34.

Yet Harari is plagued by one big problem: He labors in a wickedly cyclical business. Flash memory is largely a commodity market, so if any of his rivals, like Infineon Technologies, get aggressive, they can torpedo prices and hurt his revenues. That happened last summer when flash memory prices plunged and drove down SanDisk's stock by 30% in four days.

Harari's plan to overcome this problem? He's moving to make his brand as recognizable as Intel Corp. (INTC), which mastered the art with its "Intel Inside" campaign. He hopes to persuade consumers to ask specifically for a SanDisk card, instead of, say, a 1-gigabyte card for their digital camera. "Our goal is to establish SanDisk as a consumer-branded global powerhouse in the coming decade," he says.

To get there, Harari is spending millions on a worldwide advertising campaign, in retail stores, magazines, and even on prime-time TV shows like The Simpsons and Survivor.

R&D PAYS OFF

Even more important are the company's efforts to distinguish itself through technology. As revenues have soared, SanDisk has poured money into research and development, boosting such spending 48% last year, to $125 million. The result is a string of innovations: waterproof memory cards, titanium cards, even memory cards that work only if the rightful owner presses a fingerprint on an embedded reader.

Next up: protection for data stored on your cell phone. In September, SanDisk plans to unveil memory cards designed for customers of Verizon Wireless (VZ), Sprint Corp. (FON), and other wireless carriers. Lose your cell phone, and all you'll need to do is contact the carrier to remotely disable the card.

SanDisk has dipped a toe into the gadget business, too. Last August, Harari and Chief Operating Officer Sanjay Mehrotra decided to roll out their own flash-based music players. Using Asian manufacturers, the company rushed its first product to market in the U.S. just three months later. It quickly became the No. 1-selling flash player, according to researcher NPD Group, before settling at No. 2 after Apple Computer Inc.'s (AAPL) January introduction of the iPod Shuffle.

Rivals pooh-pooh Harari's efforts. In music, competitors say SanDisk is little more than a marginal player. "I don't think anyone sees them as a serious, long-term challenger," says Sim Wong Hoo, chairman and CEO of Creative Technology.

Yet analysts say SanDisk is making progress on the brand front. "Customers have really responded to seeing the SanDisk name," says analyst Steve Baker of researcher NPD Techworld. It's not quite Intel Inside. But Harari would settle for SanDisk everywhere.

By Cliff Edwards in San Mateo, Calif.


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