The largest flash card and hard disk manufacturing company SanDisk Corporation (SNDK) is currently banking on the growth of the smartphone market, which is expected to reach a level of 900 million units by the year 2014.
The company should also benefit from the increased usage of online videos by companies such as Youtube and Netflix (NFLX), which requires additional storage space through the cloud computing network. The company is of the opinion that this segment offers a great business opportunity in the coming years.
However, concerns related to a cyclical downturn, led by oversupply in the market, are mounting. Hence, some industry experts are taking a conservative stance until the picture is further clarified in the coming quarters.
SanDisk believes that 20–25% of the notebook market will eventually be taken over by tablets, which the company views as a significant positive dynamic for its business. Interestingly, SanDisk is also of the opinion that the, 128 GB SSD price delta versus a typical HDD (1 TB size), is expected to touch the $50 range this year, compared to $200 last year.
This will hasten adoption in the notebook market, which will move aggressively to SSD solutions. Hence SanDisk believes that in 2012 there will be some variation in the SSD adoption, which seems logical.
We believe that SanDisk will be able to deliver strong financials in the coming quarter 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.
The company witnessed stronger pricing, with a corresponding positive impact on the gross margin. This apart, SanDisk is sitting on a pile of cash, which lends operational flexibility. On the other hand, the company has a high debt balance, suffers from customer concentration risk and is exposed to the current weakness in Europe.
Currently, SanDisk has a Zacks #3 Rank, implying a short-term Hold recommendation.
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