Sandisk Up on GPS and Cell Phone Demand

Shares of Sandisk (SNDK), which makes flash memory for portable electronics, and also sells those nifty USB flash drives people carry on keychains, are getting a lift today on what analyst Doug Freedman with American Technology Research calls a delayed Black Friday rally for the stock.

Sandisk’s flash memory, Freedman pointed out in a conversation this afternoon I had with him, is incorporated into several varieties of global positioning system [GPS] navigation devices. Those portable nav devices, or “PNDs,” as they’re known, did well on Friday, as Eric has noted. Moreover, more and more cell phones are gobbling up add-in flash memory cards to play music, which he thinks could be upside to sales volumes for Sandisk this quarter.

That could help Sandisk beat analysts’ numbers when it reports the December quarter results in mid-January.

Ah, but here’s the rub: Sandisk also beat its numbers this quarter a year ago, by 37%, and the stock nevertheless collapsed when the results came out in January. And back when the company reported blow-out numbers on October 18, the stock fell almost 20%. It’s all about the forecast, points out Freedman, so any rally now has to contend with the what Sandisk says about its business outlook come mid-January.

Freedman has a Buy rating on the shares, and he cites two reasons to be cautiously optimistic: for one thing, Sandisk shares are down over 40% in the last two years, which may give the stock a technical support level at today’s price. The shares are certainly cheaper than in past, trading at about 13x Freedman’s projection for $2.90 in earnings next year (excluding options expense.) And, too, he thinks average selling price declines this quarter may not be as bad as people think when the company reports in January, perhaps down only 40%. If they decline more than that, say 50%, the stock will be in trouble, he suggests.

The swing factor: the DRAM industry has to cut back on supply to stem drastic price declines, which Eric has written about. If that happens, perhaps this quarter or next, it means more chip-making capacity will be switched over to NAND flash memory production, boosting supply and hurting prices.

Freedman is projecting profit of 82 cents this quarter on sales of $1.44 billion, and he expects Sandisk may exceed that. His 12-month price target is $60.

Sandisk shares Tuesday are up 6.52% at $37.54.

Comments

[Road_geo]

The author of this article/blog is Tiernan Ray, not Eric Savits. Check it out at Tech Tader Daily.

[Mick Weinstein]

Thanks for the correction - we fixed it here.