SanDisk Corporation (NASDAQ:SNDK) entered into a partnership with Avnet, Inc (NYSE:AVT) that will provide the company a channel to distribute its original equipment manufactured (OEM) products. Avnet is one of the largest distributors of electronic components and embedded technology in the world, and sells products supplied by top IT suppliers including Microsoft, IBM, Oracle, Cisco, EMC and Samsung among others.  SanDisk, the world’s leading flash storage provider, is looking to gain ground in storage business by improving its distribution channels to international markets such as Europe, Asia and Latin America through Avnet Electronics Marketing (AEM) and Avnet Technology Solutions (ATS), two of Avnet’s operating segments.
SanDisk has been riding the growth wave of solid state drive (SSD) market, with an ~17% market share.  The company is on track to deliver 15% of its revenues from SSDs this year and foresees further growth in the segment, with the company expecting SSDs to contribute up to 25% to net revenues next year.  We expect the storage industry to be driven by SSDs over the next few years and the Avnet partnership is likely to help SanDisk achieve its target revenues.
SanDisk Expecting Growth In Enterprise Storage Business
SanDisk sells its products through the OEM channel and the retail channel. The products sold by SanDisk through the retail channel include pen drives, memory cards, micro SD cards and are sold directly to consumer electronic stores, e-commerce retailers, supermarkets, convenience stores etc. A few products in this segment have shown a slight decline over the last few quarters, with the company’s main focus being enterprise storage for the upcoming quarters. 
On the other hand, enterprise storage products and embedded storage for smartphones, tablets and laptops are usually sold to distributors via the OEM channel. The distributors such as Arrow Electronics (NYSE:ARW) and Avnet have specialized expertise in reaching customers in various countries, including emerging markets such as Asia and Latin America. Over the last couple of years, there has been growth in demand from data centers owing to Big Data and cloud storage, due to which the storage companies have witnessed a surge in their enterprise storage solutions. In addition, massive growth in numbers of smartphones and tablets have led to an increase in the number of embedded storage products sold by storage companies.
SanDisk’s OEM revenue in 2012 was $2.8 billion which was 18% lower than in 2011. The company attributed the drop to a steep rate of price decline during the first half of 2012, due to oversupply in the NAND industry along with low sales reported for mobile embedded storage products. Despite the reduced demand of embedded mobile storage, wafers and components, SanDisk reported an increase in revenues from client and enterprise SSDs. 
The company reported a strong set of results in the first three quarters of the its fiscal 2013 with OEM revenues in that period equaling the entire OEM revenues of 2012. With the company expecting revenues generated by enterprise storage to increase going forward, we expect the Avnet partnership to bolster its sales.
Avnet, Inc is one of the largest distributor of electronic components and embedded technology in the world with operations and distribution channels in over 80 countries.  Avnet has a global distribution model that makes it convenient for IT departments of companies across the world to purchase storage products. Avnet Electronics Marketing group provides
An added advantage for SanDisk’s enterprise customers buying from Avnet is that the products bought on this platform can be combined with complementary products and services offered. It is especially beneficial for small and medium businesses (SMBs) since Avnet is a one stop shop for all electronics and technology requirements ranging from storage devices, software, wireless modules, power supplies, microcontrollers, motors, communication devices etc. According to the SanDisk’s management, the company had a presence in the retail and OEM channels, but not in Value-added Retailers (VAR) and Direct Market Retailers (DMR) till January last year, when it launched the Commercial Business Channel to focus on meeting demands of other businesses.  With this deal, Avnet becomes one of the first global distributors for SanDisk’s Commercial Business Channel.
Avnet’s portfolio includes products from leading storage suppliers including Western Digital, Seagate Technology, EMC, Netapp, Transcend, Toshiba, Hitachi, IBM, HP among others.  SanDisk’s products that Avnet has now started selling include enterprise SAS and SATA solid state drives, enterprise solid state accelerators, client solid state drives and embedded flash storage solutions. All the products sold through the Avnet channel are among SanDisk’s fastest growing segment. The deal with Avnet highlights that SanDisk is taking steps to provide a robust channel to meet the growing demand of enterprise SSDs and embedded flash storage. With improved distribution channels, SanDisk could see a 4-5% increase in market share in the long run, leading to an ~7% increase to our price estimate for the companyNotes:
- Avnet Technology Solutions Suppliers, Avnet [↩]
- SSD Market, Storage Newsletter, May 2013 [↩]
- SanDisk Earnings Call Transcript, SeekingAlpha, October 2013 [↩]
- SanDisk Focused On Driving Growth In Enterprise Storage Area, Fox Business, October 2013 [↩]
- SanDisk SEC Filings 10-k, U.S. Securities And Exchange Commission, January 2013 [↩]
- Avnet and SanDisk Partner to Deliver Innovative Commercial Flash Storage Solutions Worldwide, SanDisk Press Release, December 2013 [↩]
- SanDisk brings SSDs to Channel, CRN, January 2013 [↩]
- Avnet Suppliers List, Avnet [↩]