Key Growth Drivers For SanDisk’s Embedded Storage Division

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SanDisk (NASDAQ:SNDK) is one of the largest manufacturer of NAND flash products, which are used as embedded storage in smartphones, tablets and other consumer electronic devices. Embedded storage products (not including embedded solid-state drives) generated more than a quarter of SanDisk’s overall revenues of $6.2 billion in 2013. According to SanDisk’s estimates, its total addressable market (TAM) for smartphone, tablet and other portable device storage is expected to grow from over $12 billion in 2013 to nearly $18 billion by 2020. Below we take a look at the products included in this division and key trends affecting growth.

See our complete analysis of SanDisk here

Embedded Storage Products and Key Growth Drivers

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NAND products are rewriteable, non-volatile semiconductor memory devices that retain content even when the power is turned off. NAND is ideal for mass-storage devices due to its fast erase and write times, high storage density and a relatively low cost per gigabyte compared to other solid-state memory. SanDisk’s flash memory cards segment, which primarily sells flash storage for smartphones and feature phones, makes up approximately 17% of its value, according to our estimates.

The growth in the number of smartphones and tablets sold worldwide should contribute positively to SanDisk’s embedded storage division as all portable electronic devices use in-built storage in some form. Although the smartphone market is a mature segment in developed countries, the number of smartphones in use is expected to increase from around 2 billion currently to around 6 billion by 2020. [1] Increasing smartphone penetration in regions such as Asia Pacific is likely to boost sales numbers for embedded storage products. However, much of the growth in Asia and other developing economies is expected to come from lower-cost smartphone manufacturers. [2] As a result, this could lead to a reduction in average selling prices per gigabyte for storage companies despite improving sales numbers.

On the other end of the spectrum, high-end smartphones and tablets that use the latest technology are expected to bring in significant revenues for storage manufacturers. According to a recent estimate by Computer World, smartphone giant Apple (NYSE:AAPL) is likely to significantly increase its worldwide consumption of mobile DRAM. Apple is currently the world’s largest user of mobile DRAM, consuming 16.5% of the industry wide production. [3] This is expected to jump to 25% of the overall production by 2015 as Apple launched the new iPhone in September and is expected to release the new iPad and wearable device Apple Watch in the coming months. [4] As a result Samsung (PINK:SSNLF) has started producing its 6 gigabyte LPDDR3 mobile DRAM chip on a mass scale. Moreover, competing chip manufacturers SK Hynix and Micron Technology (NASDAQ:MU) have invested in increasing their manufacture capacities and are expected to scale up production capacity to address the expected surge in demand by next year.

We expect much of SanDisk’s unit sales growth of embedded storage products over the next few years to come from the increasing number of portable electronics devices. Despite an expected decline in average selling prices for NAND flash per gigabyte in the coming years, the company expects its addressable market to grow at a CAGR of nearly 10% in the next few years. We forecast SanDisk’s share in this market to be 12-13% through the end of our forecast period. Consequently, we expect embedded storage to generate over $2 billion in revenues for SanDisk by the end of the decade.

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Notes:
  1. 6 billion Smartphones in Use by 2020, Yahoo News, September 2014 []
  2. With Mobile Internet Ad Spending Growth of 210%, China Is The New Leader In The Industry, Daze Info, September 2014 []
  3. Apple Will Consume 25% of All DRAM in the World Next Year, Computer World, September 2014 []
  4. Apple iPad Air 2 And 12.9-Inch ‘iPad Pro’ Rumored To Feature Improved A8X Processor, International Business Times, September 2014 []