SanDisk (NASDAQ: SNDK) and Toshiba (PINK:TOSBF) recently launched a joint venture to build Fab 5, a state-of-the-art flash memory plant located in Mie Prefecture, Japan. We think Fab 5 could help SanDisk increase its share of the global flash memory market, creating a potential 3% upside to our $50.21 estimate for the company’s stock price.
SanDisk sells flash memory cards for use in digital cameras, camcorders, mobile phones, USB thumb drives and game consoles. Flash storage technology allows data to be stored in a durable, compact format that retains the digital information even after the power has been switched off.
In addition to Toshiba, SanDisk’s competitors in the flash memory business include Samsung (LI:SAMS), Hynix (PINK:HXSCF), Micron (NASDAQ:MU), and STMicroelectronics (ADR:STM).
Our analysis follows below.
Inside Fab 5
The new facility is scheduled for completion in the spring of 2011. SanDisk has not released its capital expenditures on the plant, and it’s difficult to predict how Fab 5′s production capacity will impact the company’s revenue. However, we believe that the new plant should help SanDisk increase its market share in mobile phone flash memory, digital camera flash memory and USB flash memory cards.
We estimate that a 1% share increase in the global flash memory market after 2011 could yield a 3% upside to to our stock price estimate for SanDisk. You can drag the trendlines in the charts below to create your own forecasts for SanDisk’s share of the mobile phone and digital camera flash memory markets, respectively, and see how they impact the company’s estimated stock price.
Why we like Fab 5
SanDisk and Toshiba are both dominant players in the flash memory market, and Fab 5 is expected be one of the largest, most efficient and most advanced flash memory plants in the world. The plant should enhance SanDisk and Toshiba’s competitive position by enabling them to respond quickly to market needs.
In SanDisk’s earnings announcement for the second quarter of 2010, management noted that they expected future demand for flash memory to be driven by new smartphones, tablet PCs, eBooks and other mobile Internet devices.
You can see our complete $50.21 stock price estimate for SanDisk here.
