What’s Up Kate?

SanDisk’s Audio/ Video strategy has three elements: globalization, innovation and synergies. Last week I rambled on about globalization and innovation. This week I’m going to give synergies/content a try.

SanDisk is nicely positioned to capitalize and profit from globalization. SanDisk has the lowest costs for consumer electronics products where NAND dominates the bill of materials, thanks to in-house NAND production and the farthest reach thanks to its 200,000+ storefronts.

In Q4:06 SanDisk’s strongest sequential growth in both units and megabytes was in its Sansa MP3 products, which accounted for 14% of SanDisk’s product revenue. For 2006 as a whole MP3 related revenue reached 9% of total revenues or about $275M. Not bad for a new product line up against some stiff competition and only on the market for 14 months or so.

This is the good news.

SanDisk has had far less commercial success to date on the innovation front in consumer electronics. SanDisk’s large screen Sansa View video player is back in redesign, while the award-winning SanDisk Connect seems unlikely to ever live up to its potential.

Hopefully SanDisk learned a lot from both experiences and will be able to use the related video and WiFi technology in other or re-released products.

SanDisk has another very interesting and innovative product in the pipeline– USBTV, which I am going to discuss later in this post. USBTV was conceived and developed by msystems. It is a deceptively simple device for bringing video from computer to TV.

Whether USB-TV is a market-place success remains to be seen. It does though, highlight potential synergies which long term may become an important story for SanDisk.

This post is really about beginning to look at those potential synergies. The place to start is with Kate Purmal. Kate is Senior VP & GM of SanDisk’s Digital Content group. What she is up to beyond USBTV, is something of a mystery, but there are clues.

SanDisk has made its name selling all kinds of flash-based devices for storing digital content. Recently SanDisk has branched out and started selling products that play digital content. But at least until now, SanDisk hasn’t shown any real interest in leveraging digital content itself or rubbing shoulders in Hollywood.

With USBTV, SanDisk finds itself talking directly and at length with the video content providers. Kate’s the gal.

Kate Purmal

Kate is the soccer mom recently featured in the WSJ. She’s photogenic, articulate and seems slated to be the stylish, media-savvy, younger face on the SanDisk management team.

With more than 20 years in the computer industry, Kate knows her way around Silicon Valley. She was one of the founding members of Palm Computing where she built and ran the product marketing and strategic alliance organization, helping to build the developer community supporting the Palm OS. In addition, she has held senior roles in marketing, product marketing, business development, sales, and engineering at Interleaf, Grid Systems, and Computer Associates.

In early 2005 she was hired by Dov and Eli to be CEO of U3, the msystems/ SanDisk joint venture for smart USB drives. In January 2007 she moved over to SanDisk to run SanDisk’s Digital Content group. Kate’s thing is platform building. Her first challenge will be drumming up support for USBTV, but her responsibilities don’t end there.

At this year’s analyst day, Kate spoke in broad terms about what SanDisk might be up to on the content front. My sense is that her comments apply not only to USBTV, but also to greater and broader aspirations for digital content.

In general terms Kate spoke about a “focussed effort in the content arena” based on an “open architectural system” that SanDisk is creating that enables SanDisk to “not only to provide services that are well integrated end-to-end, but [also to] discover and add in other services over time.”

To begin with SanDisk is taking an “ecosystem approach” to get in the game “with a reasonable investment.” If successful, SanDisk believes it has the potential to “generate new revenue streams,” and not “only purchase streams, but also advertising models and other ways that [SanDisk] will see revenue generated for content providers.”

Put another way, SanDisk believes its strengths in next-gen digital media (memory cards/USB drives/ USBTV/etc), digital media players (Sansas) and a potential mobile security standard (TrustedFlash) will give it an entree to the world of content providers. If this is how things go, SanDisk believes it will have opportunities to make money and build its brand in new and creative ways (advertising).

To my mind, no matter how USBTV fares, cards and mobile are the key. Believe SanDisk has real shot to ride the mobile wave all the way to the bank on digital content. When all is said and done, the dynamic with TrustedFlash and advertising may end up different than conceptualized today. USBTV may never make it. No matter.

If the microSD card becomes the DVD of the mobile device and the mobile device becomes the PC of tomorrow, SanDisk will be sitting pretty in a globalized tomorrow.

USBTV & TakeTV

At CES, in January of the year, SanDisk announced the USBTV platform, an inexpensive, compact consumer electronics device for bringing online video into the living room. Plug it into a computer like a USB drive, drag and drop a downloaded video files onto it. Remove and plug it into a TV and it is a video player/decoder with DVD player-like onscreen menus managed by remote control (included). USBTV white paper

sandiskusbtv.jpg
USBTV’s processor transparently converts video computer files into TV-friendly files automatically, no software installations or configurations required.

In addition, thanks to integrated DRM functionality, if desired, it can be used with content download services such as Guba, Movielink, and Akimbo (announced supporters.)

usbtvecosystem.jpg

SanDisk is working with TV manufacturers, including LG, Mitsubishi, and Pioneer, to include a special USB connector on their TV sets. Although such a video-optimized USB connector would be the easiest way of connecting the USBTV, its not required. The USBTV player can be connected through a TV’s standard A/V sockets with an adapter cradle.

SanDisk hopes to establish USBTV as a standard that it will use and others will license. The first USBTV players were expected this last spring. Something has slipped. Hopefully the time was needed for new partners to have signed on. Whatever the case, soon we should get news. In September SanDisk said that its USBTV product is still on track to be released this year. Not much time left.

USBTV is the name of the platform. My guess is that TakeTV will be the name of SanDisk’s product. On July 18, 2007 SanDisk filed a trademark application for TakeTV. Uses listed in the application include: computer hardware and software for viewing downloaded content; computer and software for transmitting downloaded content; hardware plug compatible with standard connectors that can carry video protected or pre-owned by users; and content download services for downloading content from websites, digital content kiosks, DVD stations. Sure sounds like USBTV to me.

In the bigger picture, the USBTV platform is only one piece in SanDisk’s content strategy. To my mind the key will be whether SanDisk can stay ahead of the competition with best priced solid state memory, whether MLC NAND, x3, x4 or the most promising 3D Matrix memory. If it can, there will be lots of opportunities for Kate and the rest of SanDisk’s content group.

In-house, best-priced solid state memory combined with on-board processing power is going to be most attractive for delivering and leveraging content whether the form factor is memory cards, USB drives, USBTV, SSDs or new and innovative form factors not developed yet.

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7 Responses to What’s Up Kate?

  1. Poofypuppy says:

    Thanks again, Savo, for the insightful info. I hadn’t really heard about the USB TV before, but it sounds like a nifty concept. As we all know, however, not every great concept is a market winner. (I remember a cool 1997-98 hardware/software combo called Quick Video that allowed users to convert AVI video into a compressed, self-executing video file that could be small enough to save to a 1.44MB floppy and play on any Windows PC. It seemed so promising but never got market traction.) It seems the ecosystem approach is the right strategy to pursue, by spreading development risk and also providing more corporate names, investment capital, technology, and marketing muscle into the mix. As NAND capacities continue to grow, USB TV could find itself as a more flexible competitor to DVR (time-shifting), Netflix/Blockbuster and DVD/HD-DVD/Blu-Ray.

    As you mentioned, however, the lynchpin for SanDisk is being able to remain the lowest cost producer of NAND, which hopefully X4 and 3D can provide. Using the old NAND = oil analogy, SanDisk is like an oil producer that is trying to stoke demand for automobiles and plastics, even as it is trying to figure out new ways to pump oil at the lowest cost per barrel.

  2. savolainen says:

    Hi Poofy,

    It will be interesting to see how SanDisk handles this year’s upcoming TakeTV/ USB-TV announcement. Am cautiously hopeful that we will get partners as they will be the key to whether this one goes anywhere. I keep thinking about when DOK came out and no one got excited and then look what happened. Sometimes these deceptively simple devices can be surprising.

    Once again SanDisk is positioned opposite Apple. Apple has its Apple TV as a product for bridging the PC/ TV gap for video. It hasn’t gone anywhere. A bit complicated, a bit limited, and a bit expensive @ $299/ $399. Steve Jobs has taken to calling it a “hobby” for Apple.

    I agree that the ecosystem approach is the right way to go for a content strategy. I don’t know if you saw the changes in “Everyman’s Apple” (I changed the title too).

    I really wasn’t happy with the flow of that one, but ran out of time and decided to put it up late on Sunday anyway. Monday I made a number of revisions including adding a very interesting quote from Eli about cards: It seems last year SNDK sold 150M cards. Eli talks about selling 1 billion/yr in 5 years. Thats a lot of cards.

    As Eli says, if you don’t take advantage of such a unique opportunity, “you deserve to be catagorized as .. a DRAM-commodity-supplier-lite.” Great quote. Then Eli goes on to note that Apple “is not a bad model” for what SNDK could strive for, and then he notes that Apple is at a disadvantage to SNDK on the low end of the MP3 player market in the sub $100 market. Today I noticed an article which said that over 70% of SanDisk’s players are less than $100 and most of the product line costs less than $149.

    These less expensive devices could be huge. It will be interesting to hear at the next analyst day what the digital audio/video growth rate was in 2007. In each quarterly 2007 cc so far, digital audio/video has been singled out as a particularly strong segment (along with mobile.)

    Some stuff I never got to: MegaSIM has great content/advertising revenue potential.

    Also Kate from analyst day: “In fact we recently got an opportunity to take USB-TV into CBS Vision which is a state of the art user testing facility in Las Vegas. There they test both their pilots and the media, as well as technology. We lined USB-TV up against other place-shifting and time-shifting technologies and put it in front of 12 consumer focus groups. It consistently scored as brand new technology in the top two or three that the consumer groups would choose to purchase. That is really unprecedented for this kind of new technology because it was up against existing technologies that people had already been familiar with.”

    This Friday as another experiment, I am going to put up some excerpts from some recent analyst reports and call it Analyst Digest (selected). Sunday’s post will be business/numbers oriented. Think there is a good chance SNDK is going to surprise on the upside on Thursday.

    Best,
    Savo

    PS Have been in touch with Mrs Cencomco and when she has the time she is going to forward a picture of John for the Header.

  3. Poofypuppy says:

    Hi Savo,

    Am very much looking forward to seeing a pic of John in the banner image. Hope I’m not overposting on your board/blog, but came across this review of the SanDisk V-Mate and it seems like an intermediate step towards USB-TV that you described… http://www.letsgomobile.org/en/review/0025/sandisk-vmate/

    “The SanDisk V-Mate is a video recorder for memory cards; it enables you to record movies or to play pictures and homemade videos from your cell phone on a television set.”

    Regards,
    poofy

  4. savolainen says:

    Hi poofy,

    Nah, you’re not overposting. Your comments are most welcome. Find them on topic and useful. Am sure others do as well. And yes, the V-Mate does seem like an intermediate step towards USB-TV.

    Looking ahead, it would make sense to include a card slot on the USB-TV device giving it V-Mate functionality, if USBTV takes off.

    Recently a few are finding this blog searching “TakeTV”. Suspect some folks in-the-know are checking up on who’s saying what.

    BTW, know there are some folks out there who go way back but don’t feel comfortable commenting because their professions don’t allow public posting.

    From time to time will leave a comment directed to their interests when such comments might be useful to others. It might take me a while, but I’ll get to it.

    Along those lines, if there are any out there who want to contact me, but not publicly. Just leave a short comment under a pseudonym. When leaving the comment there is place to leave an email address which is not public. I can contact you from there, if appropriate.

    Here’s to Q3,
    Savo

  5. afkkl8_99 says:

    Hi Savo,

    Now that the usbTV we are looking for the next coming card in the sleeve. Any idea what othe CE products are in the pipeline?

  6. savolainen says:

    Hi afkkl8_99,

    As far as upcoming CE products, am guessing next up will be a new and improved version of the large screen Sansa View video player. Essentially a product to match up with Apple’s iPod touch. Maybe at CES in Jan?

    Now that SanDisk has a fledgling video download service with Fanfare, they need a larger screen video player that much more. As discussed the challenge is that the iPod touch is really a small handheld computer with its own OS, browser and so forth.

    SanDisk doesn’t have an iPhone to dumb down, which is pretty much all Apple had to do for the iPod touch. I am guessing that SanDisk will use Linux for its OS and will also include WiFi this time around. Think they pretty much have to, as their product will be compared to the iPod touch which has WiFi. If SanDisk includes WiFi, it will probably also need to include a browser and email.

    Am not sure about whether SanDisk will use a touch screen for its product. I still think the google mobile platform would be a nice fit for applications, but SanDisk has other options too.

    Another CE product probably in the pipeline is the SSD removable card. Still think it will be along the lines of an ExpressCard with special features. Doubt we will hear about it until the MLC SSD controller is finished, but you never now.

    Also the Microsoft/SanDisk next-gen U3 products are due in the 2H 2008. I’m expecting cards as well as USB drives.

    “SanDisk in 2010” would make a good post.

    Just put up the Q3 cc transcript.

    Best,
    Savo

  7. Hapa says:

    Savo,
    What do you make of the recent Apple’s application for 8 patents related to use of flash memory? It seems that these are a layer above publicly visible Sandisk’s patents, and it makes strategic sense for Apple. It sounds like Apple is trying to put a fence around system module design that uses flash memory.

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