SanDisk (NASDAQ:SNDK) is a leading manufacturer of flash memory cards primarily used in portable devices such as smartphones and tablets. The rapid adoption of these devices is expected to increase the demand for NAND flash in the coming years. In an attempt to take advantage of the boom in demand, flash manufacturers globally have increased production in recent years, creating excess NAND supply in the market, a primary cause of depressed prices in the industry.
However, we expect this trend will slow as an increasing number of manufacturers seek to cut flash memory production in the coming years.  As flash production decreases, we could see the closure of the supply-demand gap plaguing the industry, which will help stabilize NAND prices. This will be a boon for flash memory producers such as SanDisk and could provide upside to our price estimate.
We currently estimate that SanDisk’s flash memory cards constitute approximately 30% of the company’s value. Stabilization of NAND flash prices can provide upside to SanDisk’s stock as this division is extremely sensitive to our forecast for flash memory card average selling price (ASP) per gigabyte. If SanDisk’s ASP falls to approximately 45 cents per gigabtye in 2013 instead of 36 cents we currently forecast, we could see an approximately 5% upside to our price estimate. If flash memory prices stabilize more than expected, or if the cut in production ends up too large, we could see further upside to the Trefis price estimate.
The wide adoption of smartphones and tablets will key a key driver for NAND flash growth. If the global economy doesn’t experience any hiccups going forward (which could negate the decrease in supply via a concurrent decrease in demand) we view the decrease in supply of NAND flash as a favorable industry trend for SanDisk and its competitors.
We currently have a $44 price estimate for SanDisk, which is in-line with the current market price.Notes: