Company Description:
SanDisk is a key player in the NAND flash memory market. It designs, manufactures, and sells solid-state storage products using high-density NAND flash technology. Its products are used in a vast array of consumer electronic devices such as digital cameras, smartphones, and USB flash drives as well as in industrial storage applications. SanDisk has a strong R&D arm, which provides the industry with new flash memory standards. SanDisk generates revenue through retail sales, through sales to original-equipment manufacturers (OEM), as well as from royalties related to flash memory patents.
Investment case:
In today’s consumer electronic device market, mobile storage capacity is a key element. SanDisk, together with Samsung, Toshiba, and Micron, is one of the world’s top suppliers of mobile and integrated memory devices. Over the next couple of quarters to years, the key focus for the sector will be around smartphones, tablets, and other solid-state drives, which all incorporate NAND flash memory. Growing end-consumer adoption of these items will drive sales increases for key providers such as SanDisk and the others. A key objective of the flash memory designers and manufacturers is to increase the number of bits per mm2, thereby reducing manufacturing costs over time. Yet, the sector is very early cyclical and therefore volatility is above average.
SNDK is a key provider in the flash memory supply market and has, through its strong R&D capability, the capacity to impose new standards on the market. It also developed state-of-art NAND technology through a manufacturing joint venture with Toshiba. SNDK can be expected to stay at the forefront of the market in the years to come. Competitors include firms such as Samsung, Toshiba, and Micron. Finally, it should be noted that SNDK’s industrial performance is driven by important supply and demand dynamics (factory output capacities and consumer demand).xxxSanDisk shares presently trade with a PE01 of 13.1 times and a PE02 of 12.9 times, which is below the sector average. The stock is covered by 37 analysts, 24 of which have rated the stock as a “strong buy” or a “buy”. The average target price is at USD 92.00. This represents an upside potential of over 12% for the next 12 months.
Strengths and weaknesses analysis / Fundamental analysis:
Strengths:
- SNDK is a leader in the NAND flash memory market,
- It can take advantage of scaling forces through its joint venture with Toshiba,
- SNDK’s annual waver capacity increases by about 5% (on average),
- Gross margins generally exceed 50%,
- SNDK’s business is well embedded in the secular growth trend of electronic consumer goods. This trend is expected to last for the next few years.
Weaknesses:
- SNDK’s margins will come under pressure as the sector becomes more and more industrialized,
- Its most important competitor, Samsung, has much larger capacities in terms of sales, research and manufacturing capacities,
- The industry trend is to miniaturize the process nodes for NAND flash devices. This requires substantial R&D which the company may not have if the economic cycle turns quicker than expected,
- The joint venture with Toshiba could become a burden in the event different product development approaches occur,
- Part of SNDK’s revenue is royalty driven. As the technology advances and the patents expire, revenues from licenses will decrease or even disappear if existing products cannot be improved or renewed in time.
Company profile, investment opportunity and asset management integration:
| Metric | Rating |
| Operational risks: | Above average |
| Expected growth: | Above average |
| Long term value creation: | Above average |
| Positive competitive advantage: | Above average |
| Management excellence: | Average |
| Financial strength: | Average |
| Investment orientation: | Group “Best-in-Class”: Technology, |
Price ranges:
| Buy: | Only forcustomers |
| Sell | Only forcustomers |
| Stop-loss: | Only forcustomers |
| Fair-value: | Only forcustomers |