SanDisk Continues To Focus On Enterprise SSDs Amid Weakness In Other Divisions

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SanDisk

SanDisk (NASDAQ:SNDK) has had a tough first half of 2015 thus far, with its net revenues falling by nearly 20% year-over-year to $2.57 billion in Q1 and Q2 combined. Most of the company’s revenue streams have suffered in the first half of 2015, with the exception of enterprise SSD revenues, which witnessed a massive 64% y-o-y increase to $360 million. On the other hand, the biggest area of concern for the company was the client SSD space, with revenues falling by 55% over the prior year period to $308 million in the first half of the year. Meanwhile, embedded storage (-6%), removable storage (-16%) and other revenues (-18%) faced substantial – but comparatively modest – revenue declines in the first half of the year.

In an attempt to further drive growth in the enterprise SSD space, SanDisk announced the release of the CloudSpeed Ultra Gen II enterprise-grade SSD for cloud service provider and software-defined storage vendor environments. [1] The company also announced caching support data service for VMware’s (NYSE:VMW) flagship product vSphere. [2] Below we take a look at the newly introduced enterprise SSD drives for cloud storage and how the data service for virtualized environments could impact SanDisk.

We have a revised $66 price estimate for SanDisk’s stock, which is significantly higher than the current market price. SanDisk’s stock price has fallen by about 50% since the beginning of the year. SanDisk’s stock price has fluctuated between $46 and $69 in the last three months.

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See our complete analysis of SanDisk here

SanDisk CloudSpeed Ultra Gen II SSD

Barely a month after SanDisk announced robust growth in enterprise SSD product sales, the company released the new CloudSpeed Ultra Gen II SSD for cloud service provider and software-defined storage vendor environments. The enterprise-grade SSD is available in a capacity of 1.6 terabytes and can write 32,000 4K input/output operations per second (IOPS) at a throughput rate of 530 MB per second. Moreover, the SSD has a random read/write latency of as low as 80 microseconds while the average write latency is about 56 microseconds. [3] The 2.5″ form factor SSD is ideal for usage in latency-sensitive environments that include data centers for e-commerce businesses and collaborative online services. This product is ideal for upcoming e-commerce businesses that have high workload requirements. The SSD has 2 million hours of mean time between failure, due to which SanDisk offers 5 years or maximum endurance usage warranty for the drives.

In the most recent quarter, SanDisk’s enterprise SSD sales rose by over 32% y-o-y to $173 million. Although the rise in revenues was slightly lower than the 140% annual growth observed in 2014, it partially offset the revenue decline in the other domains. The company witnessed a sequential improvement in Fusion-io (PCIe SSD) revenues through the quarter. Within the enterprise SSD division, the company expects customers to shift from low-end SATA enterprise-grade SSDs to high-end SSDs and PCIe storage solutions giving SanDisk a larger market to cater to. The addition of cloud storage-specific SSDs gives SanDisk the edge in this market domain. Moreover, SanDisk’s management stated that the company intends to price products more competitively, thereby capturing a larger market in the coming quarters. The price per unit performance for the CloudSpeed Ultra Gen II SSD stands at 4 cents per IOPS, while competing SATA hard drives can cost as high as $3.50 per IOPS. [3]

Next-Gen FlashSoft Software For VMware vSphere

In an attempt to develop enterprise-class flash storage products, SanDisk announced that its SAS enterprise-grade SSDs used in Dell storage systems were certified by VMware as a supported flash tier of VMware vSAN storage-area network in late 2013. [4]. The Dell PowerEdge R720 and PowerEdge T620 servers used the SanDisk SAS enterprise SSDs. On the virtualization front, SanDisk’s Flashsoft software supports all VMware vSphere features, including vMotion, VMware High Availability and vSphere Distributed Resource Scheduler. On the back end of storage, FlashSoft is compatible across all available data storage infrastructures irrespective of make (EMC, NetApp, Hitachi or Dell) or connectivity (SATA, SAS or PCIe).

More recently, SanDisk announced the latest version of FlashSoft software for VMware vSphere. [2] The new FlashSoft version includes write-back caching support for all VMware datastores such as Virtual Machine File System, Network File System, vSphere Virtual Volume and VMware Virtual SAN. Using the new FlashSoft enables automatic cache deployment which can be managed on VMware vCenter storage policies. VMware has enabled the integration of third-party solutions (SanDisk in this case) for solid-state acceleration into the its flagship vSphere platform. SanDisk will provide more details on the integrated offerings at VMware’s annual conference VMworld this year.

These two upgrades to SanDisk’s portfolio indicate an enhanced focus by the company to capture the enterprise SSD market. We currently forecast SanDisk’s share in the enterprise SSD market to rise from 12.4% in 2014 to about 18% through the end of our forecast period. If the market share rises to over 23% through the end of the decade, it could imply a 6-7% upside to our $66 price estimate for the company’s stock. You can modify the interactive chart below to gauge the effect a change in average price per GB of USB flash drives would have on our price estimate for SanDisk.

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Notes:
  1. SanDisk Enables Performance & Density Gains for Cloud Infrastructures with New SATA SSD, SanDisk Press Release, August 2015 []
  2. SanDisk Unveils Integrated Data Service for VMware vSphere with Next Generation FlashSoft Software, SanDisk Press Release, August 2015 [] []
  3. SanDisk CloudSpeed Ultra Gen. II SATA SSD Announced, Storage Review, August 2015 [] []
  4. SanDisk Enterprise SSD and Dell PowerEdge R720 and PowerEdge T620 Servers Certified for Use with VMware Virtual SAN, SanDisk Press Release, December 2013 []