SanDisk’s Opportunity in the Tablet Market

SanDisk Corporation (NASDAQ:SNDK) is a global leader in the flash memory card market and competes with Hynix (PINK:HXSCF), Micron (NASDAQ:MU), Samsung (LI:SAMS), STMicroelectronics (ADR:STM), Toshiba (PINK:TOSBF) and IM Flash (a joint venture of Micron and Intel).

We recently updated our forecast for SanDisk based on its strong performance in Q4 10 and the positive outlook for flash storage in the future given the rising popularity of smartphones and other portable hand held devices that use flash storage. (See SanDisk Upping Estimates on Higher Margin Outlook)

We believe that the recent surge in popularity of tablet devices in particular and the use of solid state drives (or SSDs), which are based on NAND based flash memory, provides SanDisk with a tremendous opportunity going forward. Below we here try to gauge the impact of the rising tablet market and the upside potential to our $50.60 Trefis price estimate for SanDisk’s stock.

The Tablet Opportunity

The launch of Apple’s iPad in 2010 and its huge impact so far have led to a scramble among technology giants to launch their own tablets to get a foothold in this market. The tablet market will likely change the way people use computers, and so major computer companies need to have some competing product or risk missing out on the huge growth in this segment.

Since its launch, Apple’s iPad sold more than 14 million units in 2010 and became the fastest selling gadget ever. The intense competition among companies launching their own tablets has led to rapid development in tablet capabilities and accelerated the adoption among consumers. Research firm IDC forecasts the tablet market will grow to 44.6 million units in 2011 and 70.8 million units in 2012, and other prominent research firms expect a much higher figure. ^[1]

The expected growth of the tablet market is tremendous and SanDisk stands to gain significantly from its growth. Using the IDC numbers as a starting point, if SanDisk manages to capture 33% share in tablet storage market by the end of our forecast period, there could be an upside of 6-7% to our $50.60 Trefis price estimate for SanDisk’s stock.

We believe that SanDisk’s share of the tablet storage market could look similar to its penetration of the mobile phone storage market as depicted below.

Cloud Storage Competition
Given the requirement for portability in tablet devices, the only storage options available to tablet manufacturers comes down to using SSDs or cloud storage. HP’s WebOS tablet is expected to launch with cloud storage features, according to several reports. ^[2] While we believe that cloud storage will be the preferred way in the long-term as it enhances the accessibility and usability of the tablet devices, tablets will be the most useful immediately with built-in SSD based storage features.

If and when cloud storage becomes widely used for tables, users will only need SSDs to handle basic storage space. We don’t think SSDs will disappear altogether as users will need storage on the move (ie. in flight) or away from network access where cloud access might be limited.

We see significant upside to SanDisk from the rising tablet market if the firm manages to repeat its smartphone success with tablets.
You can drag the trend lines above to see the impact of various tablet market (by changing the number of global mobile phones sold) and capacity per tablet (by changing the capacity per flash card) scenarios on SanDisk’s stock price.

See our complete analysis of SanDisk’s stock.

1. IDC’s Worldwide Quarterly Media Tablet and eReader Tracker, IDC [↩]
2. Report: HP WebOS tablets to boast cloud storage, CNet Online, Jan 19 2011 [↩]