People thinking of investing in companies that sell mobile phones or tablets usually consider the big four: Apple (AAPL); Google (GOOG); Amazon (AMZN) and Samsung (GM:SSNLF). Investing in these companies seems pretty logical considering the growth of mobile technology. Have you considered the companies that supply parts for mobile phones and tablets?
SanDisk (SNDK) is one of these companies. It supplies flash memory chips in many of the devices and its "royalty technology" can be seen everywhere. With memory chip prices increasing, so is the company's revenue, as it grew by more than 40% last quarter.
Flash memory not only enables cloud storage but it is opening up new capabilities in enterprise storage and is the driving force for most high speed storage connections. In fact, other companies besides SanDisk are focusing on flash memory. EMC (EMC) is offering flash memory for servers as well as appliances and storage arrays. HD Holdings (HDS) is one of many companies that continue to add flash memory to their storage systems.
Flash memory has continued to grow and is now a major driver of faster communication channels and system responses. Companies like Facebook (FB) utilize it for fast response rates to "social networking traffic." It will continue to grow as the demand for storage and quick response for mobile marketing continues to grow.
Flash memory has grown from new devices, but old devices that we are familiar with are also adapting to this memory. SD cards are becoming more popular with phones and tablets on a global scale. It is preferred that laptops use flash memory instead of hard drives now. More enterprise servers and storage devices are also using flash memory.
Did you know that after International Business Machines (IBM) bought Texas Memory Systems about a year ago, it made plans to sink $1 billion into flash development? Not only did the company announce a flash deal with Sprint (S) Nextel, but it plans on creating and integrating new flash-based products into its servers and storage systems. This example continues to reinforce how universally embraced flash memory is becoming and how SanDisk will continue to prosper because of it
The real opportunity for SanDisk is the growth of flash memory chips in personal devices!
We all have read numerous stories about how PC shipments are falling behind the sales of tablets and that by 2015, tablet sales are expected to outpace personal computer sales. If I may use the phrase "mobile devices that are smart connected" I can picture in the years to come: tablets, smartphones and laptops all using flash memory (which will replace hard drives in the laptops). This puts the suppliers of these flash chips like SNDK in a nice position for growth.
A good example of this would be the company's recent third-quarter numbers report. ScanDisk tripled its quarterly profit beating analyst estimates. Revenue came in at $1.63 billion versus the estimate of $1.57 billion. Its profit came in at $1.59 per share versus the estimate of $1.32 per share. This is great news for the company when a lot of other large companies are not coming in beating both estimates in profit and revenue.
Chip prices have been rebounding from the lows that we saw last year. Both ScanDisk and one of its rivals Micron Inc (MU) are doing well. Both companies have chips in smart phones flash drives and tablets so that consumers can store movies and photos with ease.
Micron had a good quarter also; for the fourth quarter, the company had net income of $1.71 billion, or $1.51 per diluted share, on net sales of $2.8 billion. The results for the fourth quarter of fiscal 2013 compare to net income of $43 million, or $0.04 per diluted share, on net sales of $2.3 billion for the third quarter of fiscal 2013
If you have kept up on the news of these devices, or even browse through a store's electronic section, you will notice smartphones below $100; numerous netbooks and laptops under $400. Companies want to put these devices in the hands of everybody, not just the well-off. If investors are looking for "growth companies" then companies like ScanDisk should be in their sites. Flash chip demands are going to continue to grow.
The big name companies we know that sell smartphones like Google and Apple may seem like a good investment, but the "behind the scenes companies" that make the flash memory chips for the phones, tablets, and laptops might are also a good bet. ScanDisk is one of those companies.
- Gross Profit: $1,683,220
- Assets: $10,339,127
- 16.28% Gross Profit as a % of Assets
- Gross Profit:$968,000
- Assets: $14,055,000
- 6.88% Gross Profit as a % of Assets
(all numbers are in the thousands)
Observing both SanDisk and Micron's sales figures from 2012 (Yahoo Finance), the former looks like a much better potential for growth considering its "Gross Profit Asset Ratio" is over double that of Micron. A higher ratio indicates a higher level of profitability and a good indicator that the company is doing financially well.
I would encourage investors to delve into both companies. With the growth of tablets and smart phones, the flash chip industry for these markets will continue to grow and both these companies will profit because of it.