SanDisk (NASDAQ:SNDK) the maker of solid state drive (SSD) memory, flash cards and USB flash drives, is another company that faces the threat of cloud storage. The company has already lowered its outlook based on weak demand and lowering margins, but it may face more competition from the rising popularity of cloud storage services like Dropbox. 
Key Trends Likely To Cause The Disruption Of The Flash Memory Business
1. Increasing Smartphone Adoption
Smartphone owners now outnumber the users of basic phones in America. As of February 2012, nearly half (46 percent) of American adults owned smartphones.  This is most likely due to the fact that now all major carriers offer smartphones coupled with plans making the phones affordable. The rapid growth of Android based phones as well as the iPhone has enabled companies like Dropbox, Box, Amazon (NASDAQ:AMZN), Microsoft (NASDAQ:MSFT) and Apple (NASDAQ:AAPL) to provide cloud storage services to meet the growing demand for storage.
2. Increasing Data Speeds
The biggest barrier for adoption of cloud storage had been data speeds over mobile networks. With the introduction and rapid adoption of LTE in USA this is no longer an issue. The LTE network has a theoretical download speed of up to 100 Mbps.  This means an average mp3 takes a couple of seconds to download even during peak traffic hours. Though LTE pricing is a concern for a lot of the users, even the cheaper, lower speed networks are fast enough to make cloud storage feasible.
3. Increasing Popularity of Cloud Storage Services
There are various cloud storage service providers with the major ones being: a) Box, b) Dropbox, c) Amazon Cloud Drive, d) Microsoft SkyDrive, e) Apple iCloud, f) Google Drive
These services offer 2 GB to 5 GB cloud storage for free and then customers have to pay for using more storage. To gain traction, a a new entrant Box has offered 50 GB of free storage space. The advantage however is the scalability of this service. Flash drives and SSD cards are capped at a storage capacity and the only way to get more data storage space is to buy more cards. Cloud storage however enables capacity on demand.
Smaller players like Dropbox will cap capacity at 132 GB for a single user while Amazon has plans up to 1 TB of data storage. Another feature that is making this service popular is that it synchronizes your data across all your devices with access to the cloud. Data duplication and organization is one of the biggest issues with discrete flash storage devices which the cloud storage solves.
Due to these trends, it is very likely that cloud storage will become a serious challenger to legacy storage devices such as flash cards and USB drives.
Silver Lining For SanDisk
Cloud storage is already taking market share away from memory chip makers and will continue to put pressure on sales of flash memory cards and USB drives. As data plans get cheaper and faster, it is likely that phone and tablet users would move away from micro SSD cards and other external storage devices. Chip makers however have an equally high growth market to tap into.
A rapidly growing tablet market will ensure demand for flash memory used in the devices as primary storage will stay high. Solid state memory devices is already the biggest contributor to SanDisks stock and growth is expected here.
2. The Ultrabook Wave
Ultrabooks will not use traditional hard disk drives and will go the way of the tablet and use solid state devices for primary storage. We expect next generation notebooks and netbooks to follow suit and this will further drive up demand for SSD chips.
3. SSD gaining popularity
Flash memory is cheaper to run, uses less power, reliable and compact. It is also faster and can manage more operations per second when compared to legacy drives. This is leading to a growing demand in SSD storage as more enterprises shift to flash storage as applications become more data intensive and are deployed on the cloud.
Given the vast potential opportunity for SSDs in both enterprise and consumer market, we estimate that SSD memory is already the most valuable product segment for SanDisk, making up nearly 30% of the company value. This will play a major role to counter any effects cloud storage may have on revenues. We currently have a $45.50 Trefis price estimate for SanDisk, about 8% above the market price.Notes:
- SanDisk sees weak demand, pricing hurting rev, margins, Reuters, April 3, 2012 [↩]
- Nearly half of American adults are smartphone owners, Pew Internet, March 1, 2012 [↩]
- 4G, wikipedia, [↩]