SanDisk Upping Estimates on Higher Margin Outlook

by Trefis Team
-6.15%
Downside
76.18
Market
71.49
Trefis
SNDK
SanDisk
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SanDisk Corporation (NASDAQ:SNDK) is a global leader in the flash memory card market and competes with Hynix (PINK:HXSCF), Micron (NASDAQ:MU), Samsung (LI:SAMS), STMicroelectronics (ADR:STM), Toshiba (PINK:TOSBF) and IM Flash (a joint venture of Micron and Intel). In its  recent Q4 10 earnings release, SanDisk reported significant sales as well as margin improvement. Sandisk’s revenue increased by 35% year over year driven primarily by growth in mobile flash memory card sale. Mobile flash cards contributed 50% of SanDisk revenues, up from 41% in 2009.

In addition to the sales growth, SanDisk reported a double digit improvement in its product gross margin. Other expenses including sales and marketing, research and development and other general and administrative expenses also decreased by 1-2% as a percentage of sales. Based on the strong performance, we have increased our Trefis price estimate forecast to $51.40 for SanDisk’s stock with the mobile phones flash cards division contributing 54% to the company value.

You can drag the trend lines above to the see the impact of various mobile flash memory card gross margin scenarios on SanDisk’s stock price.

Higher Margin Will Boost SanDisk’s Profit

In 2010, SanDisk reduced its cost per gigabyte by 46% over last year. This huge cost improvement helped SanDisk achieve a double-digit gross margin improvement across its product segments which include mobile, digital imaging, and USB sticks among others. In the chart above we forecast the high gross margin for mobile flash memory cards will continue into the future, as the cost improvement achieved is based on technological developments by SanDisk. The higher gross margin forecast for mobile flash memory cards and other SanDisk products has resulted in a large increase in our price estimate for SanDisk.

To give an idea of the sensitivity of SanDisk’s price to Mobile Flash Cards gross margin, a 1% decline in the gross profit margin going forward results in a downside of 10% to the $51.40 Trefis price estimate for SanDisk’s stock.

Our complete analysis for SanDisk’s stock is here.

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