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Technology Stocks | SanDisk Corporation (SNDK)

To: growthstocks who wrote (52693)	4/20/2012 7:28:42 AM
From: HenryMiller	1 Recommendation of 54981

This is a cyclical business. Period. BUY when earnings falter and SELL when earnings explode. SNDK is a HUGE buy here. It's a better buy now than at any time in the last three years. Analysts will all throw in the towel. Price targets will come down to $40 or less. Buy recs will all become neutral. Everyone will give up. I am finally bullish! I've been expecting this (and I'm not sure it's over). And here it is. I, for one, couldnt be happier. I dont see any reason why $32 shouldnt hold. This is the exhaustion gap I've been waiting for. The stock is dead money for six months but after that it can and should wend its way back to $40-$45 by January 2013. And 2013-2015 has the potential to be another boom time. No reason for Mr. Dour anymore (at least with respect to SNDK). The worst has in fact happened. And we should bottom soon then move higher.

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From: dan.rosengold

4/20/2012 7:55:53 AM

5 Recommendations of 54981

With the sharp decline in the stock price due to the dismal revenue & margins forecast for Q2, I’ve turned positive for a sharp recovery in the 2H & 2013.

Q1: SanDisk saw softer demand from mobile OEM for mobile cards. This adverse trend was exacerbated by the move from feature phones to smart phone and a decline in the market share of some big OEM customers as Nokia and RIM. SanDisk responded by increasing sales to white label channels which at best times have lower margins, but in Q1 due to the sharp ASP decline produced very poor margins. In fact, some of SanDisk card inventory even dropped below cost value so SanDisk had to make $24M inventory reserve. In addition, embedded sales to mobile OEM were weak, (as expected not worse), due to low exposure to the mobile winners Apple and Samsung.

Q2: Guidance of $950-1050M which is almost 20% decline q/q and further contraction of gross margins to 26-30%. This was the trigger for the sell-off. SanDisk decided not to sell into the white
label channels in Q2 due to low profitability, which is actually encouraging as they probably see better margins selling this into other channels in Q3/Q4. This was probably a $100M-$150M business in Q1, so big impact on Q2 revenue. SanDisk is also preparing for another weak mobile card demand from OEM. Mobile embedded sales are also expected to be soft as SanDisk is transitioning its offering to the leading mobile OEM requests. The OEM mobile embedded is moving from pure NAND to MCPs with NAND + mobile DRAM and SanDisk is in disadvantage here as it does not produce DRAM. SanDisk already in Q2 qualified its new MCP offering with leading mobile OEM and is in the process of further qualification. The question is where the DRAM is coming from? I suspect that SanDisk will ship MCP’s into the Iphone5 and to other leading OEM’s and that the DRAM is coming from Elpida. . I see Elpida mobile DRAM falling into the hands of MU as worst case, to Hynix as neutral and to Toshiba as good. To secure the DRAM supply, SanDisk may have to join Toshiba in acquiring the mobile DRAM business of Elpida or at least make LT commitment

Cost reduction in Q1 was 11%, lower than my mid teens expectation due to lower revenue base and the $24M inventory reserve. Q1 purchases have a strong mid teens cost reduction, but due to the poor revenue guidance for Q2, this cost saving will shift to Q3.

What I find most striking is that 2012 bit growth was actually revised upward even with the suspension of fab5 ramp-up, due to better yields and ramp-up of the 19nm node. SanDisk will reduce its non captive purchases as a result.

To meet the 80% bit growth, SanDisk will have to increase bit growth by 45-50% in Q3&Q4. If the ASP decline moderates we may see nice recovery in both revenue and margins. This only applies if the bit produced is actually sold as I think so at the moment.

Of course, this strong bit growth is due to Apple shipments. SanDisk said that much w/o disclosing names.

SanDisk is now a company in transition from cards to SSD, from INAND to MCPs, from loser’s mobile OEM customers to the winners and this transition will become evident in Q3.

Next year industry bit growth is expected to be just 50-60%, so hopefully down the road we may see demand outpacing supply and a jump in margins. I see SanDisk making almost $2B in quarterly revenue from Q4, but for +$1.5 in EPS we need gross margins to return to 40%+. This will happen but first we need to get past Q2 and see the Apple revenue coming in.

Overall, I don't see much downside from here - ~ $34 given that we are near equity value, strong cash position, and the L&R value which is not reflected in the equity, and I estimate its worth around $16. Margin calls and momentum might take the stock as low as $30, but I see recovery from here. I see not much risk in the strong bit growth guidance for 2H, but the pricing is not clear and it may take till late in the year to see favorable trend.

I've taken my estimates down once again. The only factor for going from my original EPS forecast of $5.25 to $3.6 after the warning and now $2.5 is the ASP decline moving from low 30's% to mid 40s%. Usually, after big drop in ASP there is a period of recovery, so I'm optimistic for next cycle.

Best exit point remains with strong SSD contribution and buzz (we are 2 years from there) which may lead to better multiply and hopefully tight supply at that time. The road will not look important in hindsight once we are there and we could kick ourselves for missing opportunity down the road.

Analyst’s reaction:

DEUTCSE bank from 55 to 35

Bank of America from $73 to 65

Bit growth	7%	14%	18%	28%	80%	(4%)	-	45%	50%	79%
ASP decline	(8%)	(7%)	(13%)	(13%)	(36%)	(22%)	(15%)	(7%)	(5%)	(46%)
COGS reduction	(8%)	(10%)	(11%)	(11%)	(31%)	(11%)	(6%)	(10%)	(8%)	(34%)
	2011					2012
	1Q	2Q	3Q	4Q	Year	1Q	2Q	3Q	4Q	Year
Product revenue	1,210	1,282	1,322	1,473	5,287	1,106	940	1,268	1,807	5,120
L&R	84	93	94	104	375	99	100	105	110	414
Total Revenue	1,294	1,375	1,416	1,577	5,662	1,205	1,040	1,373	1,917	5,534
COGS	736	752	789	901	3,178	773	727	948	1,309	3,756
Gross Profit	558	623	627	676	2,484	432	313	424	608	1,778
Gross Margin	43.1%	45.3%	44.3%	42.9%	43.9%	35.9%	30.1%	30.9%	31.7%	32.1%
Product GM	39.2%	41.3%	40.3%	38.8%	39.9%	30.1%	22.7%	25.2%	27.6%	26.6%
Operating expenses	189	220	210	227	846	205	215	230	245	895
Operating profit	369	403	417	449	1,638	227	98	194	363	883
%	28.5%	29.3%	29.4%	28.5%	28.9%	18.8%	9.5%	14.2%	18.9%	16.0%
Other Income	5	10	19	24	58	-3	5	5	5	12
Tax expense	123	135	144	156	558	68	31	60	110	269
Tax %	32.9%	32.7%	33.0%	33.0%	32.9%	30.4%	30.0%	30.0%	30.0%	30.0%
Net	251	278	292	317	1,138	156	72	140	258	626
# Shares diluted	243	244	243	246	245	247	246	246	246	246
EPS	1.03	1.14	1.20	1.29	4.64	0.63	0.29	0.57	1.05	2.54


Product Revenue:
OEM	799	846	873	972	3,489	719	565	868	1,337	3,489
Retail	411	436	449	501	1,798	387	375	400	470	1,632

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From: Mbert	4/20/2012 8:48:05 AM
	of 54981

SanDisk: Color on qtr (briefing.com) Stifel Nicolaus notes SNDK's March quarter results were roughly in line with its late March negative pre-announcement. Further disappointment is the expectation for price erosion to continue into 2Q demand is not keeping up with some upside in supply. Mgmt has postponed Fab 5 capacity expansion until at least the end of 2012. Expectations are now with supply increases slowing and upswing in 2H12 demand from PC SSD, SmartPhone and tablets along with seasonal upturn, the supply/demand ratio may return to a balance. Firm views this as a plausible scenario and are maintaining Buy though lowering tgt to $48 from $60. Sterne Agee notes SNDK reported C1Q12(Mar) revs/EPS of $1.21B/$0.63 vs consensus of $1.21B/$0.67. GM at ~36% were below its expectations and weaker on NAND pricing down 25%+ q/q. Firm believes NAND pricing pressure especially on weakness in the handset market as most OEMs outside of the 2 Smartphone leaders had a weak 4Q and a weaker C1Q12. But SNDK now targeting AAPL and the iPhone market and it believes can increase share in the iPhone in C2H12. That said, SNDK had a weak 2Q12 guide with topline down to $1B and GMs to 28%. As mentioned earlier, SNDK was downgraded at Deutsche Bank, Caris, and Credit Agricole. SNDK is trading lower in pre market at $35.95.

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From: slacker711	4/20/2012 9:16:27 AM
	of 54981

Sandisk: All the wrong Flash memory moves zdnet.com By Larry Dignan \| April 20, 2012, 6:05am PDT Summary: Sandisk is being squeezed by Intel on the solid state drive market in the data center and Samsung and Toshiba for ultrabook designs. Sandisk’s first quarter results were messy and the outlook wasn’t much better. The problem: Sandisk is making all the wrong moves and focusing on the wrong customers in the Flash memory market. As a result of its market misses, Sandisk is being squeezed by Intel on the solid state drive market in the data center and Samsung and Toshiba for ultrabook designs. SanDisk reported first quarter earnings of $114 million, or 46 cents a share ( statement). Non-GAAP earnings were 63 cents a share on a revenue of $1.21 billion and a net income of $156 million. Wall Street was expecting SanDisk to report first quarter earnings of 70 cents a share on revenue of $1.23 billion. Meanwhile, it’s unclear what Sandisk can do to dig itself out of its financial predicament. Officially, Sandisk said that weak pricing and demand has been a problem. The real issue is that Sandisk is diversifying into mobile and SSDs too late. Deutsche Bank analysts Bob Gujavarty highlights how Sandisk is missing the ball in a handy chart. Gujavarty added: We believe Sandisk’s disappointing first half performance is a function of the company being focused on the wrong customers and the wrong markets. We note Sandisk has lost revenue share since 2008 and this share loss appears to be accelerating in 2012. Other analysts were busy downgrading Sandisk too. Piper Jaffray analyst Jagadish Iyer said that Sandisk is going through qualification for its embedded memory products for handset vendors. In the meantime, Sandisk is being squeezed on pricing for its OEM products. Another issue for Sandisk is that it isn’t an Apple iPhone supplier. JMP Securities analyst Alex Gauna wrote in a research note: The iPhone claims another competitive victim in terms of SanDisk now suffering reduced NAND card demand with certain mobile OEMs and carriers/bundlers. This threat has been out there for some time but the fully embedded approach in mobility appears to have now decidedly settled matters… While we clearly underestimated the adverse implications of SanDisk exposure to wireless platforms competing with the iPhone, we continue to have confidence in SanDisk engineering capabilities and are thus inclined to believe management assertions that it has second half embedded design win visibility into tier-one mobile OEMs, including Apple.

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From: FUBHO	4/20/2012 9:38:39 AM
	of 54981

NAND flash prices continue to fall Josephine Lien, Taipei; Jessie Shen, DIGITIMES [Friday 20 April 2012] NAND flash contract prices continued their downward trend in early April, due to low demand visibility, according to industry sources. Prices are set to fall throughout the second quarter. NAND flash prices have been decreasing since 2011 due to sluggish end-market demand, the sources indicated. Suppliers' faster-than-expected production ramp-ups are the other factor causing prices to edge down, the sources said. Major chip producers have moved to build products using their newer 2Xnm and 19nm process technologies, which boost their output. Demand, however, has failed to catch up with supply. With chip prices slipping below costs, suppliers are now looking for strategies to maintain price stability, such as to reduce price competition, the sources pointed out. NAND flash prices should start to rally in the second half of 2012, when demand for embedded storage solutions used in smartphones and tablets, and SSDs will likely boom, the sources believe. The current oversupply is expected to be short term. Thanks to more diversified target applications, NAND flash will see its market size outpace that of DRAM in 2013, according to a recent Gartner report.

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To: Mbert who wrote (52699)	4/20/2012 10:27:56 AM
From: HenryMiller	of 54981

Well, if you look at the monthly chart, there's Fib support at $35.25 and $29.50. I fully expect the market to weaken. And I think SNDK will drift toward to the lower Fib support if the SPX drops below 1200. If you put a gun to my head, I'd say $31.18 is a likely bottom. But calling a bottom in this stock is futile. I've learned my lesson. However, it's not a stretch to say that SNDK is now officially in the BUY ZONE which I think goes from $23-$35. I put the sell zone as $40-$50 and the "short with all your being zone" at anything above $50. SNDK management needs a wake up call. For some reason, they are incapable of seeing these important turns. I don't know what that is. They need to ask themselves why this continues to happen. Are they surrounded by YES MEN? Are they not listening to their customers? Do they not understand end markets? Do they not understand consumer trends? Something is clearly missing here. Frankly, I'd like to see top management take massive pay cuts. This stock has done nothing for long term holders. Unless you bought the bottom and sold the top, you have gotten essentially no return whatsoever over 12 plus years. Meanwhile, they dole out stock options like scoops of ice cream. If I were on the board, I'd have someone's head for this. Management needs to get the message that this is unacceptable. It's all too cozy if you ask me. So, it's definitely not sunshine, not yet, anyway. But at some point, the clouds will break and the sun WILL shine. But that's next year. And just when you're feeling good again about SNDK and SNDK management, it will be time to sell. And so on and so on forever and a day.

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