The storage market is growing and companies that are at the forefront of this industry have witnessed rapid growth. Flash Memory Drives & Solid State Drives (SSD) are witnessing huge demand due to their application in various devices and cloud storage.
SanDisk (SNDK) is one of the leading manufacturers and suppliers of flash memory storage drives. The company reported its second-quarter earnings in July and recorded revenue of $1.48 billion, which was up an impressive 43% from last year.
The burgeoning demand for SanDisk's products and the increase in price of its micro SD cards contributed to the rise in margins. Most mobile phone manufacturers now provide a card slot in their devices, leading to increased demand for memory cards. Customers looking to store more data have led to the growth of micro SD cards, pushing up demand in the process.
SanDisk has a diverse product portfolio of embedded solutions. Its products are used in various devices like smartphones, tablets, digital cameras, etc. It is also one of the leading providers of USB flash drives and solid state drives. SSDs are seeing good demand due to their application in data centers and servers.
SanDisk is looking to bolster its position in this segment and it recently acquired Smart Storage for $307 million. This acquisition will improve SanDisk's position in the enterprise storage solutions market for SSDs. SanDisk will also be providing solutions to a wider spectrum of customers as it will be able to tap a larger market in enterprise SATA products.
The future is bright
SanDisk is looking to make the most of the SSD market. The cloud market is driving SSD demand through data centers and servers. As mentioned earlier, SanDisk's acquisition of Smart Storage will be a key factor in driving sales in this segment. In the SSD market, SanDisk estimates growth of 25% in 2014 and the company has positioned itself well to execute this growth through its latest acquisition.
Even analysts are quite optimistic about the company's growth. SanDisk's earnings are estimated to grow at a CAGR of 25% for the next five years. Hence, at a trailing P/E of just under 21 and with a dividend yield of 1.5%, SanDisk looks like a solid investment proposition.
Competitors - Sony and Samsung
Sony's in-house development can be a concern:
Sony (SNE) is one company capable of challenging SanDisk on various fronts. Sony has a diverse product portfolio and is the leading competitor of SandDisk in flash memory storage devices.
Sony Mobile, a subsidiary of Sony, has significantly contributed to the sales growth of the company. Sony is confident of its MP&C (Mobile products and Communication) division's prospects. The reason behind this is simple as in the first quarter, this segment recorded impressive revenue growth of 36.2% as compared to the year-ago quarter.
In recent years, Sony has released various models of premium smartphones which did not have any external storage slots. This hindered sales of companies such as SanDisk that manufacture storage memory. The integration of storage devices helped Sony increase its margins and boost its own in-house demand.
After its recent success in smartphones, Sony further plans to expand its portfolio with more smartphones and tablets. This means that there will be higher in house consumption of memory cards at Sony and take some wind out of SanDisk's sales.
Samsung making moves:
Samsung (OTC:SSNLF) is one of the leading manufacturers of smartphones and is also the global leader in the memory business. Despite Apple being its competitor in the smartphone segment, it still pays Samsung a substantial amount every year for various components (processors and memories).
Smartphone components manufactured by Samsung generate sizable revenue for the company. Samsung's memory product portfolio mainly comprises of NAND flash memory chips and SSDs.
In July 2013, it revealed 840 EVO, a high performance SATA-based SSD which can store up to 1TB of data. For integration into the 840 EVO, Samsung started manufacturing 10-nanometer 128 GB NAND flash memories in April 2013. This is the industry's most compact high performance memory, used by the 840 EVO.
Even though the PC market is fading, SSDs are a bright spot in the storage market. According to IHS, the SSD market is forecasted to be worth $10.9 billion by the end of 2013. With a CAGR of 34.7% estimated between 2011 and 2016, the SSD market could reach $21 billion in revenue by 2015.
The following factors are driving SSD growth:
1. SSDs replacing HDDs in new generation Notebooks and Ultrabooks.
2. Price erosion of NAND has made SSDs more affordable and hence leading to higher demand.
3. Big data requirement in data centers is also driving SSD growth.
SanDisk is well-positioned in this market through its product innovations and acquisitions. The company is also trading at an inexpensive trailing P/E multiple and analysts are expecting solid growth going forward. Hence, SanDisk looks like a good bet at current prices.