Strengthen Your Portfolio’s Memory With This Company

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The data storage devices giant, SanDisk (NASDAQ: SNDK), reported its second quarter earnings, beating all estimates of top and bottom line. The company has performed outstandingly in the last year with its stock price increasing over 60%, and its current quarter results just worked out as the perfect answer for what the investors can expect from the future.

Into the numbers

SanDisk reported revenue of $1.48 billion, a 43% juup from the prior-year quarter's $1.03 billion and $80 million better than the analysts’ estimates of $1.40 billion. The company crushed the earnings estimate of $0.93 per share by reporting its second quarter EPS at $1.21 a share, compared to $0.21 per share in the same period last year, and $0.84 per share sequentially. SanDisk robust growth in gross margins from 28.3% last year to 46.7% in the last reported quarter was the driving factor of the company’s stellar profitability.

In the past, as the demand for NAND flash was mounting swiftly with growing smartphones sales, so was the supply which created a downward pressure on SanDisk's profitability over the last year. However, there is stark improvement in the NAND flash industry pricing because of simple economics, as supply is reducing compared to demand. The supply is comparatively short, as many NAND flash manufacturers have reduced their capital expenditures in the past few months helping NAND flash prices to stabilize.

The results are already evident as SanDisk reported a sequential price increase of 2% in the first quarter on top of a 7% price increase in the fourth quarter last year. Going forward, as the company keeps its supply under check it will be yielding better gross margins in the current quarter due to better pricing.

SanDisk’s margins have further improved as sales of high margin carrying embedded products and solid-state drives, or SSDs, have been strong. The company’s SSD sales contribute approximately 20% of the company’s revenue and are expected to continue rapidly as SSDs are taking over conventional hard drives as the principal form of storage in laptops and other enterprise servers.

SanDisk’s enterprise SSD demand is growing quickly because of the shift towards the cloud. Presently, SSDs prove to be the best options for cloud servers, as they need fast hard drives to situate customer data swiftly. SanDisk currently supplies SSDs to the 10 foremost PC OEMs, and these partnerships will only benefit the company in the future. It has recently announced that it will be acquiring SMART Storage Systems, to further improve its enterprise SSD portfolio.

Selling flash memory cards along with embedded memory for smartphones and tablets is also a huge revenue generating business for SanDisk. In its last conference call, management stated that over 900 million smartphones and 200 million tablets are expected to be shipped this year. Further, there is tremendous growth opportunity if the China mobile makers come up with smartphones. Being a part of a growing business is only going to prove more advantageous for the company in the future.

Competition

Micron Technology (NASDAQ: MU) is also a major player among memory manufacturers. The company has a well diversified portfolio of memory products, ranging from DRAM, NAND flash memories and NOR flashes technologies. It is a market leader in DRAM and NAND manufacturing process and is expected to acquire the Japanese company Elpida Memory. This acquisition would condense the supply of DRAM, giving Micron Technology better control over its pricing. 

Apart from the company’s strength in DRAM, Micron Technology, in its last quarter, reported an 8% increase in the price of NAND flash memory, which led to an overall growth of 12% in the company’s revenue. The DRAM industry is shifting from PCs to other devices such as mobiles, servers and automation. Micron Technology seems well placed to benefit from the shift as it witnessed record shipments in these areas. In short, Micron Technology is also going strong and seems to be well equipped to benefit from the future.

Samsung (NASDAQOTH: SSNLF) is another major player in NAND flash memory chips and SSD market. It has come up with some new SSDs recently, which is expected to bring momentum in transition to SSDs from comparatively cheaper NAND flash. Samsung itself being the largest player in the smartphone market can gauge the expected growth of the SSD market. I

n 2013, the demand for SSDs will grow handsomely by 75% compared to last year. Further, according to IHS, the market for SSDs will be around $22.6 billion by 2016, compared to a $7 billion market last year.

Samsung is a recognized smartphone company, which represents its core business. It currently dominates the smartphone industry with an array of phones suiting all price points. The company is trying to grow its storage device business because it offers better prospects and margins, which seems to be reducing in the smartphone business due to increased competition. Samsung very well knows how to dominate the market and with its own PC and smartphones as a  major client for its storage device business, its all set to perform well.

Final words

SanDisk is going strong and will be benefited in the future, as it is operating in a globally growing industry. Globally, consumer storage is expected to grow from 329 exabytes in 2011 to 4.1 zettabytes in 2016, and the average storage per household should reach 3.3 terabytes in 2016 from a figure of 464 gigabytes in 2011. SanDisk is expected to derive great benefit from the growth in the industry and thus the revenue outlook of $1.53 billion to $1.58 billion, seems achievable. Moreover, the margins are also going strong and are expected to boost in the coming quarters.

As Warren Buffet says, “Bet on sure things,’’ and SanDisk is one of the safest and surest bets an investor can make at the moment.

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tarun bachhawat has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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