) went up 5.8% in after-hours trading following
better-than-expected results in the first quarter of 2014. The
strong results were mainly attributable to strong client and
enterprise solid state drive (SSD) sales, strength in retail
businesses and favorable supply/demand metrics.
SanDisk's first-quarter adjusted earnings of $1.32 per share came
ahead of the Zacks Consensus Estimate of $1.17. Moreover,
earnings per share increased 70.2% from the year-ago quarter.
Adjusted earnings per share exclude amortization of
acquisition-related intangible assets, convertible debt interest
but include stock-based compensation expense.
Total revenue in the first quarter increased 12.7% on a
year-over-year basis to $1.51 billion. It was not only toward the
higher end of management's guided range of $1.450 billion-$1.525
billion but also ahead of the Zacks Consensus Estimate of $1.49
billion. The year-over-year revenue growth was primarily
attributed to strong demand in both client and enterprise SSDs.
Notably, sales from the SSD jumped 61% on a year-over-year basis
and comprised 28% of total revenue.
Furthermore, SanDisk's prudent mix of high-margin embedded and
client and enterprise class SSD solutions and products boosted
Commercial revenues (65% of first-quarter revenues), which grew
18% year over year. However, mobile embedded revenues (part of
commercial revenues) remained flat on a year-over-year basis,
primarily due to strong demand from iNAND offerings, which offset
a decline in custom embedded solutions. The decline was due to a
shift by a customer to client SSD solutions.
Additionally, SanDisk's revenues from retail channels (35% of
first-quarter revenues) increased 4% year over year driven by
growth in USBs, SSDs and mobile cards.
During the quarter, SanDisk unveiled the 128GB Ultra microSDXC
UHS-I memory card. The newly-launched card that will be available
worldwide is expected to improve the computing experience
(especially on mobile devices). In a separate development,
SanDisk also introduced an enhanced version of iNAND Extreme
embedded flash drive (EFD).
SanDisk's adjusted gross profit (including stock-based
compensation but excluding other one-time items) for the quarter
came in at $770.9 million, up 42.4% form the year-ago quarter.
The year-over-year growth was primarily aided by higher SSD
product mix, strong growth in branded retail channels and low
revenues from custom embedded solutions.
SanDisk reported 17.8% year-over-year increase in adjusted
operating expenses. As a percentage of revenues, operating
expenses were up 92 basis points (bps) from the year-ago quarter.
The increase was primarily due to higher research and development
expenses, sales and marketing expenses and general and
The company reported operating profit (including stock-based
compensation but excluding other one-time items) of $446.4
million, up 67.8% from the year-ago quarter.
Excluding the amortization of acquisition-related intangible
assets, convertible debt interest expense and related tax
adjustments but including stock-based compensation expense, net
income for the first quarter came in at $304.6 million or $1.32
per share compared with $191.5 million or 79 cents in the
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Balance Sheet & Cash Flow
Cash and short-term investments were $2.81 billion versus $2.91
billion in the previous quarter. Long-term marketable securities
were $3.51 billion. SanDisk had $1.17 billion of convertible
long-term debt in its balance sheet.
SanDisk generated $357.6 million in cash from operating
activities compared with $616.8 million in the prior quarter.
SanDisk repurchased stock worth $90 million and paid dividends
amounting to $52.0 million.
SanDisk also declared a cash dividend of 22.5 cents per share for
the second quarter of fiscal 2014, payable on May 27.
Management is positive about embedded solutions and enterprise
SSD revenue growth, favorable product mix and better
supply/demand metrics in 2014. SanDisk expects bit supply to
remain unchanged in the range of 25% to 35%. Also, the company
expects to increase its wafer capacity by approximately 5%.
SanDisk expects revenues for the second quarter to be between
$1.550 billion-$1.625 billion while the Zacks Consensus Estimate
for the same period is pegged at $1.580 billion.
SanDisk reiterated its fiscal 2014 revenue guidance in a range of
$6.4 billion to $6.8 billion. The Zacks Consensus Estimate for
the period is pegged at $6.676 billion.
The company expects its second quarter non-GAAP gross margin to
be in the range 47.0%-49.0%. The company raised its fiscal 2014
gross margin forecast and expects it to range between 47% and 49%
(previous guidance 45% to 48%).
SanDisk expects operating expenses in the range of $315 million
to $325 million for the second quarter and $1.250 billion to
$1.275 billion for full year 2014 (previous guidance $1.225
billion to $1.25 billion). Thus, non-GAAP operating margin
is expected to range between 27% and 31% in 2014.
SanDisk posted solid first-quarter results, with both its top and
bottom lines surpassing the Zacks Consensus Estimate. It also
provided an encouraging guidance. Revenues from commercial and
retail channels were strong, aided by higher mobile embedded and
client and enterprise class SSD sales. Moreover, the acquisition
of SMART Storage Systems is expected to expand SanDisk's
offerings in the Enterprise SSD segment.
Lackluster PC sales, competition from
Micron Technology Inc.
) and currency fluctuations could hurt fundamentals to some
extent. However, we remain positive on management's commentary of
a turnaround in the coming quarters and strong secular demand for
its storage products.
It is also worth mentioning that
) is currently a major customer of SanDisk. Hence, we believe
that with price and cost benefits as well as a long-term NAND
supply agreement with the likes of Apple will help SanDisk to
outperform in the NAND market.
Currently, SanDisk has a Zacks Rank #2 (Buy). A better-ranked
stock in the technology sector is
Juniper Networks, Inc.
), sporting a Zacks Rank #1 (Strong Buy).