- SanDisk's (SNDK) soft Q2 gross margin and muted Q3 margin outlook stems from a "strategic decision" to supply Apple with a huge volume of embedded NAND flash and SSDs at lower margins, says Susquehanna. Susquehanna, RBC, and others are defending SanDisk's move, arguing the near-term pain is worth the long-term benefit of a strong relationship with Apple.
- The company's below-consensus Q3 sales guidance is chalked up to supply constraints for 19nm NAND flash parts amid healthy demand from OEMs (likely including Apple) and enterprise SSD clients.
- SanDisk stated on its CC (transcript) it now expects its 2014 bit supply growth to be at the low end of a prior 25%-35% guidance range due to the constraints. Industry supply growth is still expected to total 40%.
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Needham (Buy) thinks SanDisk will ramp 19nm capacity in Q4, and expects a mix shift towards embedded NAND and SSDs to boost margins long-term. Morgan Stanley (Equal-Weight) isn't as enthusiastic. "We expected 14% Q/Q bit growth, 6% ASP declines, and 3% cost declines; instead they did 31% bit growth, 16% ASP declines, and 12% cost declines."
- Micron (NASDAQ:MU) continues following SanDisk lower. Needham recommends buying on the weakness.