SanDisk co-founder and CEO Eli Harari continues to fight the good fight against Apple's iPod juggernaut, but even he's starting to look toward the future.

SanDisk's flash memory chips and cards can be found in mobile devices all over the world. But the company's attempts at making music and video players that would compete with the iPod haven't taken off. SanDisk is the second-leading maker of MP3 players, but Apple's got 70 percent of the market and SanDisk has only around eight percent.

Harari admits that Apple's tough to beat in the music player category. But he's looking forward to watching mobile phones -- such as Apple's iPhone -- grow more and more sophisticated. More applications and data will require more storage, which people will want to move between devices. And that's exactly where SanDisk comes into play.

The company also stands to benefit from the introduction of flash memory in notebook PCs; assuming flash makers and PC companies can reach a consensus on the development of hybrid hard drives that promise to boost performance and reduce power consumption.

Harari sat down with ZDNet Australia sister site CNET News.com recently to discuss the ongoing trends in the flash market, Apple's music player prowess, and even the future of software on mobile devices.

Q: Let's start with SanDisk and the music player business. What do you think about that market these days, given your position and Apple's position?
Harari: Let's start with the Sansa Clip (announced that day by SanDisk). If you compare the Sansa Clip with the iPod Shuffle, for one gigabyte it's US$39.95 versus US$69.95 [actually US$79 for the iPod Shuffle]. It's got an FM radio, it's got a display, it's got a shuffle mode. Let's say you want an iPod nano as your first MP3 player, if you want a second device you really ought to get the Sansa Clip; there's no question about it, it's a great product.

Well, if you started with an iPod why wouldn't you just continue with an iPod?
Harari: If you want to stay within the closed system and you don't want Rhapsody, you don't want Napster, you don't want Yahoo Music, you don't want Wal-Mart music store or you don't want Amazon music store, then stay with the Shuffle.

Why is it that despite some of these features and despite more of the choices in music services that you can offer people, no one has managed to make a dent in Apple's market share?
Harari: Because they're very good. You've got to give them credit where credit is due. But the value proposition with a Shuffle is just not there and people have been buying the Shuffle because, frankly, there has been no alternative for that.

Can you take the 30,000-foot view for a moment? When you look at the company and where you want to take it over the next one to three years, is SanDisk going to be known more as a supplier of this consumer electronics gadgetry or will you concentrate more on the manufacture of memory?
Harari: We are very, very good at the manufacture of flash memory. I believe we are as good as any company out there and we certainly plan to continue to be very focused on that together with our partner Toshiba, but we do want to move up the scale.

There's no question that again in the next two to three years there would be a plethora of smart devices that are handheld and battery-operated where they need a lot of storage and the only solution is flash memory.

Our vision of the music environment, music and video, is that it's real, and it is in fact converging very quickly on the cell phone. The cell phone really ultimately is your multimedia platform. Apple has in fact conceded that by putting so much behind the iPhone ... basically they're seeing the same trend as everybody else is seeing.

The iPod has sold 100 million [units] in the first six years of the product, which is phenomenal success but it's [a fraction of] the number of cell phones that the cell phone industry is shipping every month. We will be very focused on providing storage and secure storage and removable storage that moves from one handset to another, that allows you take your music with you or your video clips with you from one environment to another.

Are you working on a phone design of your own?
Harari: Well, we never preannounce products. But I believe that in the next two to three years everything will be wireless, every kind of device would be wireless connected to everything else and therefore the distinction between a cell phone or an MP3 player is going to be somewhat blurred.

It's very difficult for me to see us trying to out-Nokia Nokia. Nokia certainly is a very good customer of ours, but where we can add value to Nokia or to Sony Ericsson or to Motorola or Samsung is to add value to make their phones more attractive. That would be our inclination.

Can you help us understand strategically how far you see yourselves going upstream? Give us a broader understanding of what you think the company should aim at, where do you see it evolving?
Harari: First of all, we are absolutely focused on mobile platform. The mobile platforms that we're talking about are all moving to very intelligent devices that are wireless to communicate with each other.

Basically, the iPhone really is a computer in disguise and the smartphones are computers. There's no question that again in the next two to three years there would be a plethora of smart devices that are handheld and battery-operated where they need a lot of storage and the only solution is flash memory.

What role will software play? One of Apple's advantages (over other MP3 player makers) is that it controls the software that goes with its devices.
Harari: With due respect to Microsoft, they clearly are not on the cutting edge of either innovation or efficiency. Apple definitely has an advantage over there and certainly they're taking advantage of that.

But it's a 700MB operating system in the iPhone and really it needs to be much, much more. A much more efficient operating system that probably is free is Linux, and that's really where you're going to see a tremendous amount of innovation.

Apple has an advantage in terms of near-term, but frankly they have a major disadvantage in that they reject and repel other people's ideas and other people's applications. That will eventually be to their detriment because they just don't have enough time in the world to invent everything and do it better than everybody else.

Are you are looking at some sort of Linux-based software to run on your future devices?
Harari: No, I'm not saying that. The biggest threat to Microsoft is not the Apple operating system but rather Linux. It's very difficult to beat free, and consumer electronics always gravitates actually towards the closest thing to free.

Eli, you saw the announcement last week by Seagate getting into the flash market. How does that impact SanDisk?
It's great, I think Seagate is very smart. In 1988 or '89 when I was visiting Kodak, they had flash technology and digital film but really wanted it to go away, they basically wanted to shove it under the carpet. Seagate is not doing that. They're saying this is a real technology and we're going to be a player in that.

How do you think that will change the development of hybrid hard drives?
Harari: Hybrid disk drives have so far not been very successful because they're dogs. They've tried to cut to a minimum the flash memory in the disk drive. It's a catch-22, they put in too little flash and therefore they're not getting the performance, therefore they can't charge more for it, and therefore they've got to use less of it.

The way to do it is to say, "what's the minimum that they really do need to get a very, very marked performance improvement?" And that's what I've got to start with. It doesn't have to be, say two gigabytes, but it's not one gigabyte either.

You're the founder of the company and you've been chief executive since, what 1988? How much longer are you going to be at this?
Harari: As far as I'm concerned, so long as I'm having fun I'm OK, as long as I can contribute and help the team. We are very, very early in our development as a major corporation and we have some really exciting stuff in the years ahead. So I'm still good. I still have a lot of energy and I have an incredible team that makes it possible for me to have a lot of fun.