SanDisk Shows Signs Of Stabilizing In Volatile NAND Industry

| About: Western Digital (WDC)
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SanDisk (SNDK) announced its Q3 earnings on Thursday. It reported revenues of $1.27 billion, a 10% decline on a year-over-year basis, but a 23% increase on a sequential basis. [1] Because these numbers were actually higher than what the street estimated, shares of the company jumped around 5% in after-hours trading. Looking at these results we think that the company did a good job to weather tough economic conditions during the quarter. Specifically, the company was able to (1) capitalize well on increasing smartphone demand, (2) implement new OEM partnerships, and (3) position itself to take advantage of stabilizing NAND flash prices.

Mobile Drives Growth

SanDisk’s quarter-over-quarter revenue growth was driven by strong growth in its mobile business. We are glad to see that SanDisk was able to capitalize on the rapid increase in smartphone penetration and increased its market share in most major geographies. These market share gains should help the company establish an even stronger foothold in a growing industry, which will ensure that SanDisk’s revenues grow with the overall smartphone market.

However, it should be noted that the sales of smartphones are correlated with a stable macroeconomic environment. As the company expects most of its revenue to come from an increasing demand for these products, any hiccups in the world economy could mean surprises to the downside.

OEM Successes

SanDisk reported that it got a lot of wins on the OEM front during the third quarter. The company successful increased capacity to generate high volumes for an undisclosed OEM partner, which was a big contributor to the company’s mobile based growth. Additionally, OEM revenues are expected to drive growth going forward as the company successfully qualified for thirteen new mobile OEM platforms.

In our opinion these wins are key since OEM revenues make up almost 60% of SanDisk’s product revenues. Additionally, unlike a retail purchase, these OEM relationships lead to a recurring revenue stream as SanDisk sometimes sets up capacity for a specific customer.

Slower Price Declines

In our pre-earnings article, we discussed how the improving supply and demand balance in the NAND flash industry could help SanDisk with its top line. The company reported sequential price declines of only 8% in Q3 compared to almost 20% in Q2. This is a big improvement for the company, and could signal health for the NAND flash industry.

Additionally, the fact that SanDisk’s NAND price declines were relatively muted when compared with competitor Micron (NASDAQ:MU), signals that the company’s management has done a good job in positioning the company to take advantage of industry trends. This proactive management should help the company time volume increases and decreases a bit better than competitors, which could possibly lead SanDisk to outperform in a highly competitive industry.


  1. Press release, SEC

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