Gelbtuch asserts that NAND prices have firmed, “likely” due to the pending launch of the Apple (AAPL) iPhone. With multimedia handsets “taking center stage,” and the emergence of solid-state drives and Flash video iPods, he sees a demand/supply equilibrium coming by the fourth quarter.
Meanwhile, Gelbtuch says that Hynix, which has 20% share of the NAND market, “is looking to make peace with SanDisk,” by forging a long-term licensing deal with SanDisk. He also notes that the company is generating “substantial success” with its Sansa MP3 players, with the #2 brand after the Apple iPod.
Gelbtuch adjusted his EPS estimates downward, though. He goes to $3.8 billion in revenue and EPS of $1.20 a share for 2007, down from $4.2 billion and $2. For 2008 he sees $4.5 billion and $2.25. He says there is “significant leverage to SNDK’s model, which in turn, should drive multiple expansion."
In another note, ThinkEquity’s Eric Ross asserted that NAND pricing is “not quite at the bottom,” although he repeated his Accumulate rating and $45 price target on SanDisk. He might feel favorably inclined on the stock, but it is not an especially cheery note. “Prices have fallen sharply, and we believe the whole world already knows it,” he writes. Prices in recent weeks have continued to fall at a 10%-15% quarterly rate, and could be down 20% sequentially for the second quarter, he says. “Most supply chain sources expect prices to continue to fall for at least another month or two, and likely to some degree (albeit slowing) until the end of the year.”
Ross adds that hopes for a second quarter pricing recovery could go unfulfilled. “Investors are looking to demand to pull the industry out of the slump — NAND Flash drives for PCs and cell phone handset volumes. We agree these will be drivers, but we fear there may be difficult news beforehand.”
Ross cut estimates to 8 cents a share from 18 cents for the first quarter, and to 84 cents from $1.02 for 2007; he sees $1.93 a share in 2008.
SanDisk yesterday morning was up $1.15 at $41.14.
SNDK 1-yr chart