Contrarian Pick: Flash Memory Vendors

The investment thesis in flash memory vendors consists of the following:

• Memory prices are in the dumps.
• The creation of newer markets due to price erosion is needed.
• Increased demand due to higher memory capacities and new markets, more than offsetting any price per bit declines.
• Memory vendors currently trade at rock bottom valuations.
• Most existing players are looking to divest or merge. The survivors should be great investment candidates.
• The trend towards mobility and computing convergence will drive growth towards newer markets and higher capacities.

Moore's law has been a constant guiding light over the last
30 to 40 years in the semiconductor industry. Gordon Moore made this
observation thirty years ago, and it has held true ever since. This
basically predicts the shrinking of transistors, thus doubling
performance every 18 months, with reduced costs and area. The reduced
cost and added functionality facilitates their use in a wider array of
markets and applications. <!---->

As the average selling price [ASP] continues to plummet, elasticity
dictates that newer markets and applications would be discovered, which
would simulate sales growth. Andy Kessler discovered the same phenomena
with EPROMs in the 1980s. Really, nothing has changed in terms of
demand supply curves. Elasticity is the guiding investment principle in this sector.