Sun Shines On SanDisk's Eli Harari

Tiny memory cards have meant fast growth for Sunnyvale, Calif.-based SanDisk . By selling postage stamp-sized cards used to hold memory in digital cameras, MP3 players, cell phones and PalmPilots, the company has seen its earnings jump fifteenfold to $300 million since 1997.

That explosive growth helped put Chief Executive Eli Harari Eli Harari , 54, near the top of our list of Best Value Bosses. During the five years ending in 1999, he took home only $2.2 million in compensation--meaning he was paid only $46,000 for every 1% that SanDisk grew (measured by the average of growth in sales, income and share price, all annualized and compounded).

When Harari founded SanDisk in 1988, nobody took baby pictures with digital cameras. Although camera makers like Fuji and Eastman Kodak foresaw a day when shutterbugs would, there was no computer technology that could replace photographic film.

Harari, who has a Ph.D. in solid-state physics from Princeton University, was among those who saw that a technology called flash memory might do the job. Flash is a cousin of the random access memory (RAM) used in personal computers; but unlike RAM, which is erased when a computer is turned off, flash continues to keep what's stored on the device after the power is turned off. Harari believed the silicon-based technology could become small enough to be the digital equivalent of Kodacolor or Fujifilm.

The technical obstacles to making small memory cards daunted most venture capitalists. "They said you couldn't do it with today's technology," Harari says. They had a point. SanDisk's first product, sold in 1990, was a flash memory disk that IBM used a replacement for traditional disk drives. It was 2.5 inches in diameter, much too big for a digital camera.

Harari finally got his company started with the help of Silicon Valley venture capitalist Irwin Federman Irwin Federman , now SanDisk's chairman. They originally called the company SunDisk--Harari's daughter, now 28, came up with the new name when Sun Microsystems complained before the company's 1995 IPO.

These days, SanDisk crams 1.2 gigabytes of memory onto its tiny disks, all of it stored on transistors or switches that store information by being on and off. Unlike RAM, in flash these switches hold their positions even when no electricity courses through them, holding memory until the user decides to erase it.

"I'm a device physicist," says Harari. "I've known all along what flash can do."

But the sun may not always shine so brightly on SanDisk. The 720-employee firm's ascent was fueled by an explosion in the use of flash memory. In 2000, sales of flash-related products were up 133% to $10.6 billion, says Brian Matas, vice president of IC Insights, a semiconductor market research firm. SanDisk is only a small meteor in that storm.

SanDisk is now a leader in selling flash applications to consumers, although consumer sales represent a small portion of the entire market for flash products, says Matas. Hewlett-Packard , Fujitsu, Motorola , Kodak and Panasonic are among the companies that sell cards produced by SanDisk under their own brand names.

In addition, the consumer market is as volatile as RAM and is sensitive to economic downturns. And although Harari says that he's not worried about flash media disks becoming commoditized yet, they are bound to become so as they become more ubiquitious.

For the three months ended March 31, Sandisk's revenue decreased 7% to $101.3 million. The fortuitous wave that landed Harari atop our list may have already crested.

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