Global Memory Chip Leader SanDisk the Latest Heavyweight to Pursue Vietnam's Promise

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By William Patalon III
Executive Editor     
Money Morning/The Money Map Report

SanDisk Corp. (SNDK), the world's No. 1 maker of memory-chips for data storage, is the latest global leader to focus on the Vietnam market, and this week announced plans to start selling its Sansa music player, USB flash drives and mobile phone cards to consumers in the fast-growing Asian country.

SanDisk has teamed up with FPT Corp., a leading Vietnamese distributor of IT and wireless phone products, and Ingram Micro Inc. (IM), the world's largest wholesale distributor of technology products. Those two companies will distribute SanDisk products in Vietnam.

Gavin Wu, the managing director of SanDisk's Asia-Pacific business unit, said the current economic growth rate and the expanding infrastructure base make Vietnam an ideal market for SanDisk's products.

In a nation of 87 million people, SanDisk said there are 23 million wireless phone subscribers and another 17.8 million Internet subscribers – each of which is viewed as a potential customer, according to the company. Underscoring the country's high-tech potential is Vietnam's online gaming industry, which is projected to generate $50 million in revenue this year, and $83 million in 2010, the state-run China news agency Xinhua reported recently.

SanDisk will launch a Vietnam marketing campaign later this month, the company's Wu said.

Back in October, SanDisk reported third-quarter results that beat estimates as it boosted sales outside the United States and sold more chips to mobile-phone makers. By moving into the Vietnam market, SanDisk is clearly trying to sustain that strong rate of profit growth.

Vietnam joined the World Trade Organization (WTO) in January, and is one of the world's fastest-growing economies. Its Gross Domestic Product (GDP) growth has exceeded 7% in each of the past four years. The Vietnam economy actually grew 8.16% in the first nine months of 2007, its best economic performance in 10 years, that country's General Statistic Office announced in early October. And now the government is expecting that nation's economy to advance at an 8.5% for the full year.

Indeed, Vietnam's growth rate has exceeded that of Thailand, Malaysia, Taiwan, South Korea, and even India.

Deregulation and privatization programs, rising exports [helped along by the white-hot global commodities boom], and rapidly increasing foreign direct investment, have helped fuel the nation's broad-based and fast-paced economic expansion. Vietnam is attractive to foreign firms because of its inexpensive labor costs and a work force that's well educated, despite its youth.

Vietnam has become a lightning rod of investment for both global information-technology players and the so-called “global titans” in recent years. As a result, foreign investment jumped by 49% to a record $10.2 billion last year. By the middle portion of this year, investments in projects financed by foreign firms had already eclipsed the $8 billion mark, as major corporate players position themselves for a major push into Vietnam's growing market. For example:

  • The Boeing Co. (BA) recently completed deals to sell 12 of its new Boeing 787 Dreamliner jetliners to both Vietnam Airlines and to a new Vietnamese leasing company as that Asian country's flagship air carrier moves to end its airliner shortage. Based on published list prices – which are typically subject to deep discounts – the deal is worth $1.9 billion. Vietnam has 46 aircraft, but wants to almost double that to 86 by 2015.
  • Last year, chip-giant Intel Corp. (INTC) said it would expand a chip testing-and-packaging plant in Vietnam into a $1 billion venture – triple the size of the original outlay.
  • Korean steelmaking giant Posco (PKX) plans to invest $1.13 billion in new steel plants.
  • Earlier this year, Taiwan electronics giant Hon Hai Precision Industry Co. Ltd. announced plans to invest $5 billion Vietnam over the next five years. Hon Hai Precision assembles the Mac Mini, the iPod and the iPhone for Apple Inc. (AAPL), PCs for Hewlett-Packard Co. (HPQ), motherboards for Intel, and mobile phones for Nokia Corp. (NOK). Video-game consoles are a $10 billion global market, and Hon Hai is a major player there, too, actually assembling all three of the major gaming systems that are currently slugging it out in the consumer markets around the world: The Microsoft Corp. (MSFT) Xbox 360, the Sony Corp. (SNE) Playstation 3, and the popular but tough-to-find Nintendo Co. Ltd. (NTDOY) Wii. Hon Hai's market power actually drove Flextronics International Inc., (FLEX) into a deal to buy rival Solectron Corp. (SLR) for $3.6 billion. Flextronics wants the manufacturing and marketing muscle needed to keep pace with its other foreign rivals – particularly Hon Hai.
  • Nike Inc. (NKE) is responsible for more than 130,000 Vietnamese jobs.

That interest from major companies worldwide will only continue – and with good reason, experts say. Consider these statistics, which underscore the allure posed by the Vietnam market:

  • More than half its population is under 25 years old.
  • At 2%, Vietnam's unemployment rate is among the world's lowest, trailing only Azerbaijan, Cuba, Iceland, Andorra and Liechtenstein.
  • Its labor and production costs are roughly one-third that of China's, making Vietnam a worthy contestant in the contest for new production sites.
  • Its economy was able to shrug off the 1997 "Asian Contagion" financial crisis and averaged 5.5% growth for each of the next two years – while other nations in the region saw their own economies contract.
  • And it is now a member of the WTO.

This is no surprise to those who follow Vietnam's growth. Many analysts predict Vietnam will be the country that emerges after the current wave of emerging economies mature and their growth rates slow down. A big factor in Vietnam's favor is that its economy is growing soundly, instead of at rates that border on out of control

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Before he moved into the investment-research business in 2005, William (Bill) Patalon III spent 22 years as an award-winning financial reporter, columnist, and editor. Today he is the Executive Editor and Senior Research Analyst for Money Morning. With his latest project, Private Briefing, Bill takes you "behind the scenes" of his established investment news website for a closer look at the action. Members get all the expert analysis and exclusive scoops he can't publish... and some of the most valuable picks that turn up in Bill's closed-door sessions with editors and experts.

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