SanDisk (NASDAQ:SNDK) announced its Q2 earnings today, reporting total second quarter revenue of $1.03 billion, a 25% decline on a year-over-year basis.  This figure however was in line with the companies guidance as after Q1 earnings were announced, the company stated that lower demand for its OEM products would weigh on earnings and revenues. Because these numbers were more or less expected, shares of the company jumped around 10% after hours since their non-GAAP earnings of $0.21 per share beat analyst estimates and have more or less traded at these levels since the earnings report.
We think that this earnings report could be a catalyst for the company’s stock, possibly converging to the Trefis price estimate. The firm expects their revenues in the third and fourth quarters to be substantially drive the firm’s value and forecasts that new tablet and smart phone launches will increase demand for its NAND flash storage devices.  Additionally, it reported market share gains in both the emerging and developed markets, and its solid stated drive business is also expected to grow due to increased demand for the new Ultrabook line of products.
However, it should be noted that the sales of these consumer products are correlated with a stable macroeconomic environment. As the company expects most of its revenue to come from an increasing demand for these products, any hiccups in the world economy could mean surprises to the downside of the company’s projections. In 2011, approximately two-thirds of the company’s revenues were generated from the Asia-Pacific region, and a slowdown in this region combined with the troubles in Europe (exports to which many Asian economies rely on) could weaken the company’s financial situation.
In this quarter the company experienced decreasing retail revenues for the U.S. and European markets which signals an increasing reliance on emerging markets (Asian and Latin America) for retail growth. You can use our tool below to incorporate your own forecasts for Global smart phone demand to determine its affect on SanDisk’s price:
Despite these macroeconomic headwinds, the fact that SanDisk’s products are primarily used in new up and coming technologies such as Ultrabooks, smart phones and tablets cold mean an inelastic secular demand. If that is the case, we expect SanDisk to maintain its value, which according to our estimates presents significant upside to the market price.
We currently have a $45 Trefis price estimate for SanDisk, which is around 20% above the current market price.Notes: