SanDisk Headed To $45 As Demand Recovers Later This Year

SanDisk (NASDAQ:SNDK), a global leader in solid state memory (SSD) devices and flash memory chips, announced weak first quarter results with revenues declining 7% y-o-y to $1.21 billion and down by a sharp 24% on a quarterly basis. Lower-than-expected pricing and demand weakness were cited as reasons for the decline even as it missed its lowered outlook. ^[1] SanDisk competes in the external flash memory storage business with Micron Technology (NASDAQ:MU).

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Interpreting the numbers

Net income was down by 48% on a y-o-y basis at $114 million for the quarter. The company has issued no specific outlook except a pickup in demand in the latter half of 2012. ^[2] Competitive pricing pressures and unpredictable demand for products along with excess inventory leading to potential write-downs could impact revenues in the second quarter. Seasonally, the third and fourth quarters have seen higher demand and, as SanDisk diversifies to provide SSD storage to mobile and tablet markets, revenues could pick up in the second half of the year. We expect the SSD memory division to be a key growth driver in the tablet market.

Outlook for 2012

We expect the demand for SSD memory to improve in the next few quarters driven by the demand for smartphones and tablets. We estimate tablets sales of 102 million in 2012 and expect this figure to reach 519 million by the end of our forecast period. This will further boost demand for SSD memory, which we estimate is the most important division for SanDisk. Prices of flash memory cards, however, are expected to fall and may fall faster than we expect due to oversupply.

We have a $45 Trefis price estimate for SanDisk, which is about 20% above the current market estimate.

Understand How a Company’s Products Impact its Stock Price at Trefis

1. SanDisk sees weak demand, pricing hurting rev,margins, Reuters, April 3, 2012 [↩]
2. SanDisk Q1 Filings, www.sec.gov, April 19, 2012 [↩]