) is a manufacturer of flash memory storage solutions such as
memory cards, solid state drives (SSDs) and USBs. Most of these
products fall in the consumer discretionary bucket, and their
success largely depends on the health of the global economy. With
mounting evidence that the growth in Asian countries is slowing, we
think it could impact our price estimate SanDisk's stock, going
See our complete analysis of SanDisk here
In its latest 10-Q, the company reported that the Asia-Pacific
(APAC) region makes up close to 62% of its total revenues.
Giving credence to our concerns on Asia, SanDisk's APAC revenues
declined 34.4% year-over-year "primarly due to decreased sales of
embedded products and cards for mobile phones and tablets," as
declared by the company. We think that SanDisk's heavy reliance on
Asia can have an heavy downside impact on its revenues if growth
continues to slow.
As mentioned above, SanDisk's product suite falls mainly under
the consumer discretionary category. When things get tight or the
outlook looks gloomy, consumers (especially in developing
economies) are likely to cut purchases of high-end products
such as smartphones and personal computers. Unfortunately, for
SanDisk, its revenues depend heavily on these products; its mobile
product segment makes up approximately 30% of its value.
If global phone demand tapers off as the APAC region slows in
the next year or two, we could see the flash industry as a whole
decrease the prices to appeal to more consumers. If industry prices
decrease, SanDisk will have to follow suit or risk losing market
share. Since costs will likely stay stable, we can expect the
decrease in prices to cut into SanDisk's gross margins. Currently,
we forecast that SanDisk's gross margins will remain flat at 40%
over our forecast period but, if margins fall to around 30%, we
could see a 10% downside to SanDisk's value.
A global slowdown, evidence for which is mounting, would be
devastating for the flash industry. Since SanDisk has negligible
pricing power in a highly competitive industry, we could see the
company post poor Q3 2012 and FY 2012 results.
We currently have a
$44 price estimate for SanDisk
, which is approximately 5% higher than the current market
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