Seeking Alpha
Research analyst, long/short equity, tech
Profile| Send Message|
( followers)  

SanDisk (NASDAQ:SNDK), the maker of solid state drive (SSD) memory, flash cards and USB flash drives, announced that its mini Serial AT attachment (mSATA) SSD memory chips have been adopted by Fujitsu (OTCPK:FJTSY) for its recently-announced ultrabooks and by Lenovo (OTCPK:LNVGY) for its ThinkPad Edge-series notebooks. We estimate the SSD business will be the fastest-growing division for SanDisk due to the growing popularity of tablets, ultrabooks and smartphones which use SSD memory to improve performance and start-up time.

See our full analysis on SanDisk

Fujitsu has selected SanDisk's 32GB iSSD memory device for its LifeBook line of ultrabooks. The iSSD technology coupled with Condusiv Technologies' ExpressCache software helps reduce system startup and application loading time, making ultrabooks faster and more responsive. SanDisk also said that Lenovo has chosen its 16GB U100 mSATA SSD for its new ThinkPad Edge E430 and E530 notebooks.

We expect SSD to be the biggest growth market for SanDisk as the penetration of tablets and smartphones increases. We think the following factors will drive growth in coming years:

1. Tablets

A fast-growing tablet market will keep demand elevated for flash memory used as primary storage in devices. Solid state memory devices are the biggest contributor to SanDisk's stock, and we expect further growth in this segment. The company expects the average tablet storage memory capacity to grow to 71 GB by 2015 (source).

2. The Ultrabook Wave

Ultrabooks are not built to use traditional hard disk drives and will adopt SSDs for primary storage. We expect the next generation notebooks and netbooks to follow suit, and this will further drive up demand for SSD chips. The average notebook storage memory capacity is projected to grow to 262 GB by 2015, according to SanDisk.

3. SSD gaining popularity

Though the initial outlay for a SSD chip is high, flash memory is cheaper to run, uses less power, is reliable and compact. It also processes faster and can manage more operations per second compared to legacy drives. This will lead to rising demand in SSD storage as more enterprises shift to flash storage as applications become more data-intensive and are deployed on the cloud.

If ultrabook demand for SSD improves and SanDisk's market share in the segment increases by 5 percentage points from our estimate of ~19% to 24% by the end of our forecast period, we can expect around 5% upside to our price estimate. We estimate SanDisk's SSD memory division constitutes nearly 15% to the company value.

We have a $45.50 Trefis price estimate for SanDisk, about ~30% above the current market price.

Disclosure: No positions

Source: SanDisk Reaches $45 On Ultrabook SSD Demand