We have downgraded our recommendation on
) to Neutral due to the continued declines in PC sales and the
anticipated increase in expenses that are expected to impact the
Why the Downgrade?
Despite reporting better-than-expected third-quarter results
and forecasting a favorable solid state drive (SSD) revenue
growth, favorable product mix and better supply/demand metrics in
fiscal 2013, SanDisk expects its expenses to increase in the
fourth quarter primarily due to expenditure related to the SMART
Storage Systems acquisition, seasonal marketing, and increase in
R&D costs. These factors are expected to have an impact on
the company's bottom line.
Though SanDisk did not provide any earnings forecast, it is
worth noting that the Zacks Consensus Estimate for the fourth
quarter is pegged at $1.47. Incidentally, SanDisk delivered
earnings per share of $1.51 in the previous quarter
Although we believe the SMART Storage Systems acquisition is
expected to expand SanDisk's offering in the Enterprise SSD
segment and its 19-nm technology is already gaining traction, we
remain concerned due to the competitive pressures in the NAND and
SSD space. It is noteworthy that
) share in the NAND memory market has increased with the
acquisition of the Japanese chip-maker, Elpida.
Apart from Micron, SanDisk is expected to face stiff
competition from two new entrants in the SSD market, namely
Western Digital Corp
Seagate Technology plc
). Moreover, continued microeconomic sluggishness, tepid IT
spending and dismal PC sales are the headwinds that can mar the
company's results in the near term. Per the data provided by IDC,
PC shipments contracted 5.6% on a year-over-year basis to 82.2
million units in the fourth quarter of 2013.
Currently, SanDisk has a Zacks Rank #3 (Hold). Investors can
also consider better-ranked stocks such as Western Digital and
Broadridge Financial Solutions which boast a Zacks Rank #1
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