Why SanDisk Might Prove to be a Good Investment

Harsh is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Memory maker SanDisk (NASDAQ: SNDK) caught the Street by surprise in its recently reported second quarter. The company had hinted that its inventories weren’t moving as fast as its production three months back, pressurizing prices in the process. But a sterling performance coupled with the possibility of a better future sent the stock soaring.

A brief snapshot

SanDisk’s rally should come as a relief to investors, as the stock was trading almost 30% in the red so far this year before the spike brought about by earnings. Although SanDisk’s revenue shrunk one-fourth from the last year and profit took a body blow, investors were content with the upbeat outlook that it provided.

Weak NAND pricing and low demand from equipment makers led SanDisk toward a lower top line in the quarter. A soft pricing environment had also handicapped SanDisk’s peer, Micron Technology (NASDAQ: MU), in the previous quarter. However, like I had said in my post on Micron, NAND pricing is expected to stabilize in the second half of the year.

Even SanDisk predicts pricing on similar lines. The company projects an improvement in demand of flash memory products as new mobile devices are launched. This would lead to an improved pricing environment and also help margins as it sells more of its high-margin solid-state drive (SSD) products.

New products to drive sales

In addition, SanDisk is improving its product offerings so as to move ahead with times and hitch a good ride on the mobile computing bandwagon. As equipment manufacturers move away from the “bundled memory card” card concept to embedded flash memory, SanDisk is customizing its offering in sync with industry demands and began shipping the new product to an important customer toward the end of the quarter. The company expects this embedded solution to drive its revenue higher in the current quarter.

Apart from this solution, SanDisk also began shipping its multi-chip package solutions meant for use in budget smartphones. Also, SanDisk’s SSD products continue to gain traction with customers. It started shipping its high performance X100 SSD to a number of manufacturers in the previous quarter and expects them to bloom further in the ongoing quarter. These are some of the many innovative products that SanDisk is counting upon to drive growth in the future.

The SSD story

Moreover, with the smartphone and tablet industry geared up for a breakout soon, SanDisk expects its mobile products to find more takers. Also, with chipmaker Intel (NASDAQ: INTC) warming up for the Ultrabook rampage, the SSD market should start looking up. Intel is set to launch a huge wave of Ultrabooks toward the end of this year, and these machines should use SSDs in order to meet Intel’s Ultrabook standard. This is where SanDisk can expect more gains. In fact, SanDisk has recorded design wins at Fujitsu, and more importantly, Lenovo, for supplying SSDs.

Another memory play?

With SanDisk’s upbeat forecast, it seems we are in for some blooming memory play. Another important participant in this play is Micron, which recently agreed to acquire bankrupt Japanese memory maker Elpida. From a personal standpoint, Micron looks like a better memory stock to me because of its partnership with Intel, possible relationship with Apple, and cutting-edge technology among other reasons. But it seems SanDisk is also finally coming around.

The Foolish bottom line

SanDisk looks well-prepared going forward and might help investors see some better days. The signs of a recovery are indeed there, and the Street’s positive reaction to SanDisk’s results and outlook are noteworthy. SanDisk is launching a number of products to tap the enormous potential of the mobile computing market and this shouldn’t escape your attention. Keeping all these factors in mind, you can certainly take a look at SanDisk if you’re considering some new additions to your portfolio.

TechJunk13 has no positions in the stocks mentioned above. The Motley Fool owns shares of Intel. Motley Fool newsletter services recommend Intel. 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. If you have questions about this post or the Fool’s blog network, click here for information.

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