The one thing that really moves markets and stocks is a story. A thesis. That’s the reason why, whenever you are buying or shorting something, you really need to know both the bullish and the bearish thesis on whatever you are trading.
What this article presents is one such thesis. In this case, it presents the SSD Revolution.
First of all, what are SSDs? SSDs are Solid State Drives, that is, long-term memory storage drives with no moving components. Today’s SSDs are simply based on using a lot of non-volatile flash memory (as opposed to RAM, which is volatile so loses content when it loses power). SDDs are thus an alternative do HDDs – Hard Disk Drives – that use magnetic heads and spinning disks to record information. HDDs are today’s preferred method for long-term storage of data.
But this might change, because SSDs are:
- Faster (both in terms of access speed and transfer speed);
- More reliable (given the fact that they don’t have any moving parts);
- Less power hungry (which is an useful requirement both in small devices like smartphones and tablets, as well as in large data centers);
- Less complex.
There are still two big disadvantages SSDs have:
- SSDs usually have a lower storage capacity / density;
- SSDs are much more expensive (for the same storage capacity).
However, the nature of SSD is very different from the nature of the HDD. Where HDD are complex machines requiring lots of moving parts and high mechanical precision, SSDs are, at their core, semiconductors. SSDs evolution thus parallels the evolution of semiconductors, with exponential increases in density more or less predicted by Moore’s Law. This means SSDs’ advantages keep getting larger and its disadvantages smaller, at a very fast pace.
Given this evolution and the relative advantages and disadvantages, it is predictable that in time SSDs will take away more and more market segments away from HDDs. Such has already happened in MP3 players, is slowly happening in notebooks and now ultrabooks, and is also slowly
So who stands to lose and gain?
Among the losers, one obviously has to include the HDD makers, such as Seagate (NASDAQ:STX) and Western Digital Corp (NYSE:WDC). Unless these companies can re-invent themselves, they will face a slow technological transition that could leave them obsolete.
Among the winners, there are many SSD suppliers as well as flash memory suppliers. Here, one of the problems is determining who has intellectual property (NYSE:IP), because without it commoditization is something that can happen easily. Also, since these suppliers sometimes act on several industries or in very cyclical segments (like RAM), winning because of the SSD revolution can easily be diluted by losing elsewhere. Still, the one name that seems well positioned to profit is Sandisk (SNDK) (also favored by the Tablet effect). Other names, like Samsung or Micron (NASDAQ:MU), are a lot less certain because of the reasons stated.
As always with this kind of story, some stocks emerge that can be bubbles. That would seem to be the case with Fusion-io (NYSE:FIO), so care must be taken on how to take advantage of the thesis.
Finally, the storage and memory industries are incredibly competitive and so it's not easy finding players with any kind of sustainable advantage. This limits the possible gains from this thesis, for instance STEC would seem a nice fit for the thesis, but with plunging estimates and an ugly chart it would make no sense to speculate on it, at least not until they somehow produce a positive earnings surprise.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.