Disasters can mean quick profits but you have to know how to take advantage of them. This is especially true in technology.
Take Thailand's flood, for instance. Did you know Thailand is a big producer of hard disk drives? It is. And Asus, one of the largest Taiwanese OEMs, now says it only has enough drives to last out the month. Prices for such drives are rising.
But that may not be the way to play. Instead consider Solid State Drive (SSD) makers like Fusion IO (FIO), ScanDisk (SNDK), Stec Inc. (STEC) and OCZ Technology Group (OCZ), which can benefit as an alternative to hard drives.
StorageSearch does a regular Top 20 round-up on the industry and what's remarkable is how American the market is, and how many of its leaders are relative start-ups. EMC and Intel are on the list, but way down it.
In fact the hottest SSD company, Violin Memory, has been teasing people about a coming IPO for months, and meanwhile has drawn venture investment valuing it at $440 million.
The “raw materials” for these drives are usually flash memory chips (which don't lose data when they turn off) and SSD controller chips. But it's really all about the software, which decides whether a system will go into a simple notebook PC or tablet, or into cloud infrastructure. That's what makes this an American specialty.
Fusion IO serves the cloud, as does Violin, so they're hot. But Sandisk mainly serves the PC market and may be the better short-term investment. Not only are SSDs, with no moving parts and low power usage, completely cool for the hottest markets like tablets and phones, but these consumer markets can actually take advantage of problems in the hard drive area and grab some netbook share as well.
If you're worried about raw materials the largest Flash NAND chip maker, Toshiba, has four plants in Yokkaichi Japan, near Nagoya. Samsung is another big producer of these important chips, and is in Korea. Getting supplies should not be a problem, although price is always an issue.
Fusion IO, which went public in May, has nearly doubled investors' money since then, rocketing 14% just yesterday in anticipation of stronger earnings. Sandisk, which has gone precisely nowhere most of the last five years, is still ranked an overweight by Morgan Stanley, which is betting on its low PE of 10.
STEC shares were hammered at the end of July when management guided down on earnings, and has since announced a stock repurchase plan worth $40 million on a market cap of under $600 million. OCZ has been rocketing up on strong earnings for a month now.
Another stock to watch in this area is LSI (LSI), which recently bought Sandforce for $370 million, aiming to get them into new markets. (The Sandforce relationship with OCX was so close that company had to issue a congratulatory press release on the deal.)
For investors, you'll pay a premium for SSD makers who live “up the stack,” in enterprise markets and the cloud, because those markets are hot. But don't ignore those in consumer markets, where the full effects of the Thailand floods have yet to play out.
Disclosure: I am long INTC.
