On Aug 14, 2014, we issued an updated research report on
) post its better-than-expected second-quarter results. SanDisk's
year-over-year revenue growth was primarily attributed to strong
demand in both client and enterprise SSDs. Notably, SSD sales
jumped 97% on a year-over-basis and contributed 29% to total
SanDisk is making considerable efforts to promote its client and
enterprise solid state drive (SSD) products. This is an area with
better growth prospects and a more stable pricing environment.
Enterprise class SSDs are faster and more energy efficient than
traditional hard drives, which is the main factor driving the
demand. These drives occupy less space making them more suitable
for mobile computing devices. SSDs are also being used in servers
to reduce latency, which in turn leads to faster response to
Given these advantages, SanDisk expects enterprise SSD total
addressable market (TAM) revenues to reach $8.0 billion in 2017,
while the TAM for the enterprise SSD, Client SSD, embedded and
removable SSD combined is expected to be $41.0 billion. Moreover,
the company expects to generate approximately 40% of its revenues
from SSD in 2017, up from 19% in 2013. Enterprise SSD revenues are
estimated to increase at a 3-year compound annual growth rate
(CAGR) ('13-'16) of 55%.
To achieve these milestones, the company has also resorted to
acquisitions. Recently, the company acquired Fusion-io, a
flash-based PCIe hardware and software solutions provider, for $1.1
billion in cash. Leveraging Fusion-io's hardware and software
solutions, SanDisk will be able to enhance its existing flash
memory storage portfolio. Some of SanDisk's other acquisitions
include SMART Storage Systems and Pliant Technology in the SSD
segment. Furthermore, the acquisitions of FlashSoft and Schooner
Information Technology not only provided the company a solid
traction in the client SSD market, but also enhanced its
SanDisk is set to benefit from the improving demand trend in
NAND technology in the coming quarters. Restricted NAND bit supply
and surging demand from growing usage in consumer electronics and
mobile gadgets bode well for a stable supply/demand balance,
leading to a benign pricing environment. According to SanDisk, bit
supply growth is expected to grow 30-40% in 2014 and remain within
this range through 2018. In 2013, bit supply growth was 38%.
Also, SanDisk is prudent in regularly returning value to
shareholders. The company repurchased stock worth $371.5 million
and paid dividends amounting to $102.4 million during the first six
months of fiscal 2014. Going forward, the company is expected to
return 100% of free cash flow to shareholders through dividends and
share repurchases subject to the need for strategic mergers and
acquisitions and investments to avail other growth opportunities.
Share buybacks will boost earnings per share and increase
Nonetheless, lackluster PC sales, competition from Micron
Technology Inc. (
) and Western Digital (
), and currency fluctuations remain the headwinds. However, we
remain positive on management's commentary of a turnaround in the
coming quarters and strong secular demand for its storage
It is also worth mentioning that Apple Inc. (
) remains a major customer of SanDisk. Hence, we believe that with
price and cost benefits as well as long-term NAND supply agreements
with Apple will help SanDisk to outperform the NAND market.
Currently, SanDisk has a Zacks Rank #3 (Hold).
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