SanDisk, Second to the iPod

SanDisk, the flash-memory card maker has quietly become the number 2 MP3 seller in the United States.
The Sunnyvale-based company has been slowly gaining ground, offering an alternative to the iPod.

"We want to be a strong No. 2 in the MP3 space," said Eric Bone, SanDisk's director of consumer product marketing.

The company reported a record $2.3 billion revenue for 2005, and a million digital music players in the recent holiday quarter, and while Apple dwarfed it with a staggering 14 million iPod sales in the same quarter, SanDisk is very pleased with itself.

"We are not Apple. We are not an iPod. But we have a highly respected brand," SanDisk Chief Executive Eli Harari said. "We already have the channels. We have the brand."

Because SanDisk was an early innovator in the use of NAND flash memory chips, it now holds key patents and draws royalties from other flash memory manufacturers, such as Samsung. Furthermore, because of its joint venture with Toshiba, it is also a manufacturer of memory. This means that they can acquire flash chips at wholesale prices, giving it an advantage over other competitors who must buy the chips. This allows them to undercut the makers of the MP3 flash players on price, which is very important because the most expensive component of the digital music player is the memory.

This bodes very well for SanDisk as they are going to be less affected than others by the recent price cuts on the lower end iPods. Furthermore, SanDisk have so far taken the right approach, maintaining a realistic view of the situation� No iPod killers, no iPod knockoffs, just an alternative. There is still room for others in the market, the iPod may be huge but the pond is still more than big enough, fortunately the people at SanDisk understand this and are playing the game well.

"There are people who, no matter what, will buy an iPod," Bone said. "All I want is for people to think there is an alternative."