iXpand Flash Drives For Apple Devices To Overhaul SanDisk’s Removable Storage (Part 1)

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SanDisk (NASDAQ:SNDK) introduced the iXpand flash drives to transfer data to and from Apple (NASDAQ:AAPL) iPhones and iPads using the lightning connector. These flash drives are specifically designed to be used with Apple products running iOS 7 or iOS 8. The drives will have a special app to enable data transfer from portable handheld devices to Macs or PCs. The app also has cross-platform encryption, which means that users can transfer data across their smartphones, tablets, laptops or PCs in a secure manner, as files remain password protected. [1] Furthermore, IDC estimates that over 75% of photos taken in the world are on smartphones and tablet devices. As a result, smartphone and tablet users have a growing need to manage, transfer and back up data.

In the first part of this two-part article, we take a look at the addressable market for iXpand flash drives and how much SanDisk can expect from iXpand sales. In the second part of the article we will take a look at SanDisk’s removable storage division as a whole and the impact of selling Apple products to SanDisk’s margins. We have a $93 price estimate for SanDisk’s stock, which implies a slight discount to the current market price.

See our complete analysis of SanDisk here

Estimating Addressable Market For iXpand Drives

We estimate that there are a total of around 350 million iPhones and over 190 million iPads currently in use. Out of the estimated 350 million iPhones in use, just over 300 million have been sold since the iPhone 5 was launched in late 2012. All models following the release such as the iPhone 5C, iPhone 5S, iPhone 6 and iPhone 6 Plus are compatible with iXpand drives. Similarly, out of the 190 million iPads currently in use, about 160 million were sold after 2013 including the iPad Mini, iPad Mini 2, iPad Mini 3, iPad Air, iPad Air 2 and iPad 4th Gen. The iXpand drives are compatible with all these tablets except the iPad 4th Gen. In 2013, iPad mini sales constituted over 60% of total iPad sales according to an estimate on The Inquirer. [2] Since the release of the iPad Air, the sales of iPad 4th Gen have fallen to about 10% of total iPad sales. Based on this data, we get a rough figure of about 135 million iPads compatible with iXpand drives (and a total of just under 340 million iPhones and iPads combined).

Out of all Apple portable devices, an estimated 87% of devices were either on iOS 7 or had upgraded to iOS 7 by March this year, up from 74% in December 2013. [3] Apple introduced iOS 8 in September this year with all its latest products on the current mobile OS. It can be safely assumed that 90% of iPhones and iPads that are currently in use are working on iOS 7 or higher. This gives us a combined initial addressable market size just shy of 390 million Apple devices that are compatible with iXpand storage drives. We forecast iPhone sales to reach 240 million units by the end of the decade, while iPad unit sales could breach the 100 million mark through the end of our forecast period.

Impact of iXpand On SanDisk’s Flash Drive Storage Revenues

SanDisk’s iXpand Flash drives could turn out to be a lucrative option for iPhone and iPad users given that these portable devices do not come with an option to expand storage space. Apple devices do not have a slot for memory cards, as removable flash storage compromises data read/write speeds and increases latency. As a result, users choose pre-specified storage options for portable devices with storage ranging from 8 gigabytes to 128 gigabytes. All portable devices have various options to back up and transfer data such as hooking up a data cable to a computer or cloud-based backup of photos and videos (iCloud). There is also the option of transferring data through wireless storage drives offered by SanDisk, Western Digital (NASDAQ: WDC), Seagate (NASDAQ:STX) and Toshiba. However, all these options have certain constraints ranging from bandwidth bottlenecks, tangled wires or skepticism with cloud-based storage (especially after recent hacks and leaked celebrity photos). Keeping these factors in mind, iXpand flash drives could appeal to the large Apple customer base, especially as these drives are available with an app to sync data to across multiple devices including Macbooks or PC. [4]

Taking a generous estimate, if we assume that one iXpand flash drive is sold for every 10 devices in use, it could imply SanDisk selling up to 27 million units in 2015 and 34 million units by the end of our forecast period. On the other hand, if we assume one flash drive per 20 devices in usage, it will translate to nearly 14 million drives sold in 2015 rising up to 17 million units by 2020. We currently forecast SanDisk to sell 117 million USB flash drives in 2015, growing to 175 million units sold by the end of our forecast period.

iXpand flash drives are priced at $60, $80 and $120 for 16GB, 32GB and 64GB drives respectively, which translates to a price per GB ranging from $1.80 per gigabyte to $3.80 per gigabyte. This is significantly higher than the standard USB flash drives, which are currently selling for prices as low as 40 cents per gigabyte of storage. As a result, a growing mix of iXpand flash drives could help expand revenues for SanDisk’s USB flash drive revenue stream. We currently forecast SanDisk’s price per GB for USB drives to decline to around 8 cents a GB through the end of our forecast period. If the price per GB declines at a lower rate, to about 12-13 cents per GB through the end of the decade, it could imply a 3-4% upside to our price estimate for the company. 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.

Read part two of the article here to have a look at trends in removable storage and the impact of manufacturing storage products for Apple to SanDisk’s revenues and margins.

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Notes:
  1. SanDisk Introduces New iXpand™ Flash Drive for iPhone and iPad, SanDisk Press Release, November 2014 []
  2. Apple’s iPad Air is outselling the iPad Mini, The Inquirer, January 2014 []
  3. Apple: iOS 7 Adoption Reaches 85 Percent, PC Mag, March 2014 []
  4. SanDisk Reveals iXpand Flash Drive for iPhone, iPad, PC Mag, November 2014 []
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