SanDisk Corp. (SNDK) is scheduled to announce its fourth quarter 2010 results on January 27, 2011, and we see no revisions in analyst estimates at this point.
Third Quarter Overview
SanDisk delivered solid third quarter 2010 results, with adjusted earnings per share (EPS) of $1.20 per share beating the Zacks Consensus Estimate of $1.02.
SanDisk’s third quarter revenues increased 32.0% from the year-ago period led by strength in both OEM and retail businesses. The quarter’s revenue was in line with the company’s guided range of $1.175–$1.25 billion. Product revenues were up by 39.8% year over year, but License & Royalty revenues fell 20.8%.
Consolidated gross margin of the company was 52.2%, up from 47.2% reported in the year-ago quarter attributable to higher Product gross margin. Moreover, higher 32-nanometer yields and rapid transition to 32-nanometer X3 lowered costs. Operating margin surged 890 basis points year over year. Including the amortization of acquisition-related intangible assets, convertible debt interest expense, and related tax adjustments, non-GAAP net income for the quarter came in at $289.91 million or $1.20 per share versus $156.14 million or $0.67 per diluted share reported in the year-ago period.
Cash and short-term investments totaled approximately $5.1 billion and cash flow from operations was $379.1 million. Long-term marketable securities during the third quarter stood at $2.14 billion.
Guidance
For the fourth quarter of fiscal 2010, SanDisk expects revenues of $1.25 billion to $1.32 billion. Management expects License & Royalty revenue between $85.0 million and $90.0 million. For fiscal 2010, SanDisk expects revenues in the range of $4.75–$4.825 billion.
Agreement of Analysts
Out of the six and seven analysts providing estimates for the fourth quarter and fiscal 2010, respectively, none made any revision to estimates in the past thirty days. However, two out of eight analysts raised their estimates for fiscal 2011.
The limited number of changes to estimates also point to the fact that there was no major catalyst during the quarter that could drive results. Consequently, the analysts are sticking to the estimates projected following third quarter earnings.
Most analysts are bullish on the growth trends witnessed in the NAND flash memory market. However, concerns involving a cyclical downturn ,led by oversupply in the market, are mounting. Hence analysts are taking a conservative view before getting a clear picture on the NAND demand in the coming quarters.
Magnitude of Estimate Revisions
There were no changes to analyst estimates for the fourth quarter or fiscal 2010 over the past 30 days. However, we noticed an improvement of 3 cents each in the Zacks Consensus Estimate for the fourth quarter and fiscal 2010, respectively, since the third quarter earnings announcement. Additionally, estimates for fiscal 2011 increased 4 cents over the past ninety days. The reason for the upward movement could be the stable pricing environment.
Recommendation
The analysts believe that SanDisk will be able to deliver strong financials in the December quarter and fiscal 2010 based on strong NAND demand, fuelled by the demand for mobile phones. We believe that the demand for flash memory will continue as it provides the most viable data storage on smartphones, tablets and other portable devices. Moreover, SanDisk’s solid state drive design wins into Intel Corp.’s (INTC) Sandy Bridge PC platforms are also encouraging.
Currently, SanDisk has a Zacks Rank of #2 implying a short-term Buy recommendation.
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