Customers' 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, Financial) is one of the companies that are directly benefiting from the market growth. It is an established brand and one of the leading manufacturers and OEM suppliers of storage devices.
Outstanding financial performance
The company recently declared its Q3-2014 results, and they were quite dazzling. It recorded revenue increased by 7% year over year to record $1.75 billion as compared to $1.625 billion in the same period last year. It also recorded a growth of 7% on sequential quarter. The net income on the non-GAAP basis decreased to $336 million as compared to $371 million in the same period last year. The decrease in the net income was partly leveraged by the acquisition of Fusion-io; this deal was closed for around $1.1 billion.
“Third quarter results reflect the strength of our diversified product portfolio, broad customer engagements and solid execution,” said Sanjay Mehrotra, president and chief executive officer. “Demand for NAND flash continues to be strong across mobile, client and enterprise, where SanDisk’s innovations are creating significant opportunities. As we focus on closing a record 2014, we also look forward to building.
Journey ahead
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 anticipate that this will be an important contributor to growth of revenue in 2014.
The demand for memory cards is 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 for 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.
Sensible acquisition is the past
To shore up its position in SSD market segment, last year it made an 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.
Competitors
Samsung (SSNLF, Financial) is known as one of the leaders in smartphone manufacturing and is also the global leader in the memory business. Despite stringent competition by Apple (AAPL, Financial), 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.
Conclusion
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.
