Customer’s appetite for bytes is increasing and needs more storage space on devices. Flash memory drives and Solid State Drives (SSD), is witnessing a rapid growth owing to the rise in demand for more storage. Deploying of application in a cloud environment has also led to demand of storage spaces on high end servers and data centers. SanDisk (SNDK) is one of the companies which is directly benefiting from the market growth. It is an established brand and one of the leading manufacturer and OEM suppliers of storage devices.
Outstanding Financial Performance
The company recently declared its fourth quarter 2013 results and it was quite dazzling. It recorded revenue of $1.73 billion, 12% year over year growth. This quarter witnessed an increase in operating expense which was $323 million, $41 million sequential rise, higher than the anticipated forecast of $310 million to $320 million. The sequential increase in the operating expense was mainly due to one-time expenditure on R&D ($11 million), seasonal expenses of around $6 million and higher bonus expense of $5 million related to our strong 2013 results.
The company is mainly focused on SSDs that account to almost one-third of the total commercial sales. For fiscal 2013, SSD revenue recorded growth of 170%.
SanDisk comprises of a rich product portfolio and a diverse product range of embedded solutions. SanDisk’s products are used in various devices like smartphones, tablets, digital cameras, etc. It is also one of the leading providers of USB flash drives and solid state drives.
The company is making steady progress in next-generation high-performance iNAND products. It anticipates that this will be an important contributor to growth of revenue in 2014.
The demand for memory cards in also rising as various smart phone manufacturers now provide a card slot in their devices. Customers looking to store more data have led to the growth of micro SD cards, pushing up the demand, and this demand will add on to the revenue of SanDisk.
Supply bit growth of SanDisk in 2013 was 18% and it anticipates this growth to be in the range of 25% to 35% in the year 2014.
As we also see the new market of Internet of everything connecting products and storing information. As the era of internet for everything matures, the demand for the storage products manufactured by SanDisk will also rise.
To meet the rising demand of 3D NAND it plans to execute the pilot product production by end of 2015. The company is also not diverting from its plans of increasing production of 3D NAND’s technology in 2016.
Even though the PC market is fading, SSDs are a bright spot in the storage market. AS per the research, the SSD market is forecasted to be worth $10.9 billion by the end of 2013. With a CAGR of 34.7% estimated between 2011 and 2016, the SSD market could reach $21 billion in revenue by 2015.
To shore up its position in the SSD market segment, last year it made a strategic acquisition of Smart Storage for $307 million. This acquisition assisted SanDisk in positioning itself more strongly in enterprise storage solutions market of SSDs. The company now is providing solutions to a wider spectrum of customers as it is able to tap a larger market in enterprise SATA products.
Samsung (SSNLF) is known as one of the leader in Smartphone Manufacturer and is also the global leader in the memory business. Despite stringent competition by Apple, it still pays Samsung a substantial amount every year for various components (processors and memories).
Smartphone components manufactured by Samsung generate sizable revenue for the company. Samsung's memory product portfolio mainly comprises of NAND flash memory chips and SSDs.
Samsung manufactures high performance SATA based SSD (840 EVO), which can store up to 1TB of data. For integration into the 840 EVO, last year Samsung started manufacturing 10-nanometer 128 GB NAND flash memories. This is the industry's most compact high performance memory, used by the 840 EVO.
SanDisk is all set to make most of the growing SSD market. The cloud enabled service is driving SSD demand through data centers and servers. As mentioned earlier, SanDisk's acquisition of Smart Storage will be a key factor in driving sales in this segment. In the SSD market, SanDisk estimates growth of 25% in 2014 and the company has positioned itself well to execute this growth through its sensible acquisition.
Even analysts are quite optimistic about the company's growth. SanDisk's earnings are estimated to grow at a CAGR of 25% for the next five years. Hence, at a trailing P/E of just under 21 and with a dividend yield of 1.5%, SanDisk looks like a solid investment proposition.