As flash recovers, fears of another bubble by Jon Fortt @FortuneMagazine February 11, 2010, 9:46 PM EDT E-mail Tweet Facebook Google Plus Linkedin Share icons SanDisk founder and CEO Eli Harari holds one terabyte of flash memory during an interview about the future of the storage market. Photo: Jon Fortt. Flash memory might rule the roost when it comes to gadget storage – all the sleekest devices from smartphones to the upcoming iPad use it – but it can be tough to make a profit selling the stuff. No one knows that better than Eli Harari. As founder and CEO of flash memory maker SanDisk (SNDK), he has been through a roller-coaster year. Late 2008 was the worst of times. In a race for market share, SanDisk and its rivals flooded the market with flash chips. That, combined with weak consumer demand from a global recession, sank prices and drove everybody into the red. “We had a period of irrational exuberance,” Harari says, borrowing a dot-com-era phrase. More recently, though, the flash market managed to stage a comeback. SanDisk, along with other big flash producers including Samsung, Toshiba and Intel (INTC)/Micron, cut flash production last year, just before demand began to recover. Lower supply and higher demand helped usher in record revenues ($1.2 billion) and net income ($277 million) in the fourth quarter, and when I stopped by SanDisk headquarters this month to chat with Harari, he was still smiling about it. “No one built new fabs in 2009, and we don’t think any are going to come onstream in 2010,” Harari says. Stable supply, of course, often means more stable prices. But the good times might not last. Toshiba today announced plans to spend nearly $9 billion to build a new flash memory manufacturing facility, calling it a necessary move to keep up with market leader Samsung. (UPDATE: The company later clarified its comments, saying it hasn’t made a final decision about the timing of a new facility.) We’ve seen this movie before: It’s probably just a matter of time before others follow suit, raising the risk that in 2011, the market will once again be awash in cheap flash memory. Harari? He’s sanguine about the market. While he can’t promise an end to market volatility, he has reorganized SanDisk so that it’s less beholden to the whims of the retail consumer. He’s done that by backing away from competing at the low end of the market for SD cards, beefing up his business selling white-label cards to wireless carriers, and extending his global network of folks who sell rebranded SanDisk cards in places where he had a weak presence before. An example is the Chinese New Year business. “December and January has very active purchasing for that market, and the pricing is very good. February, China is basically shut down, but there will be India or Latin America. When you straddle OEM and retail, and do it globally, you have the opportunity to start optimizing.” Unless, that is, your competitors start flooding the market with product, and sinking prices. If that happens, it’s back to the roller coaster again. (AAPL) My interview with Harari: Smartphone users, click here to see the video.