SanDisk (NASDAQ:SNDK) is one of the leading designers and manufacturers of NAND flash storage solutions. The company’s flash memory cards segment, which primarily sells flash storage for smartphones and tablets, is the company’s biggest division and makes up approximately 25% of its value. We think that much of SanDisk’s unit sales growth over the next few years will come from growth in the smartphone market, which is a key driver within the flash memory card division. Additionally, the fact that SanDisk is a key supplier to Apple (NASDAQ:AAPL) is likely to help it gain market share as Apple grows.
Smartphone market to grow to 2 billion units
The primary driver for SanDisk in the coming years will be the growth in the smartphone market. Gartner estimates that smartphone shipments grew at a rapid 46% year-over-year during the third quarter of 2012. We think that overall smartphone sales will grow to over 2 billion units per year by the end of our forecast period, enabling SanDisk to sustain growth over the long term.
However, investors should note that smartphone sales depend on a stable macroeconomic environment. Unlike in the United States, customers in the emerging economies don’t have a two-year upgrade cycle, and a hit to these economies could cause a decline in discretionary spending.
Apple’s growth represents huge opportunity
We think that SanDisk will be able to capitalize on Apple’s rise in the smartphone and tablet market. SanDisk is one the key suppliers to Apple, and a rise in iPhone unit sales will increase Apple’s demand for NAND flash solutions. We think that over the next few quarters, Apple will source more of its supply from SanDisk as it decreases its reliance on competitor Samsung (PINK:SSNLF) for flash memory.
We currently estimate that around 45 million iPhones have been sold in Q4 2012, and expect Apple’s market share among mobile phones in general will increase from around 7% in 2012 to approximately 15% in 2019. According to our estimates, this market share would translate to 330 million iPhones sold a year, presenting SanDisk with a huge opportunity to leverage Apple for growth going forward.
Overall, the fact that SanDisk was able to increase its market share during 2012 in a highly competitive environment, and it being a key supplier to Apple, will boost the company’s growth going forward.
We currently have a $50 price estimate for SanDisk, which is approximately 10% above the current market price.