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SanDisk Corporation (Nasdaq: SNDK)

SanDisk Corp. (SNDK) designs, develops, manufactures and markets NAND-based flash storage card products that are used in various consumer electronics products. Flash storage technology allows data to be stored in a compact format that retains the data after the power has been turned off. The Company offers removable data storage solutions, universal serial bus flash drives, embedded flash memory drive solutions for data and code storage, flash-based digital media players and MP3 players. Its products are used in various consumer electronics devices, such as digital cameras, mobile phones, gaming devices, laptop computers, other portable devices and digital audio and video players, as well as in personal computing and network servers.

SNDK also provides embedded flash storage products that are used in various systems for the enterprise, industrial, military and other markets. The Company sources the vast majority of its flash memory supply through its significant flash venture relationships with Toshiba Corporation, which provide SNDK with leading-edge, low-cost memory wafers. The Company offers its products through retail and original equipment manufacturer distribution channels in the Americas, Europe, the Middle East, Africa, the Asia Pacific and Japan.

The Company was founded in 1988 and is based in Milpitas, California.

Source: Reuters.com, SEC Filings.

Financial Summary

The Company’s third-quarter revenue of $935 million increased 14% on a year-over-year basis and increased 28% on a sequential basis. SNDK recorded net income of $231 million, or 99 cents per share, compared with a loss of $166 million, or 74 cents, in the year-ago quarter. Excluding charges related to acquisitions, compensation expenses and a convertible note, earnings would have been $176 million, or 75 cents per share, compared with a loss of $132 million, or 59 cents, last year.

Total cash and equivalents, short and long-term investments at the end of the third quarter were $2.58 billion compared to $2.64 billion at the end of the third quarter of 2008 and $2.34 billion at the end of the second quarter of 2009. SNDK generated $238.4 million in cash from operating activities, compared to $24.3 million cash utilized in the second quarter. On a sequential basis, convertible long-term debt increased by $13.7 million to $919.5 million. Long-term investments during the second quarter stood at $1132.4 million.

For the fourth quarter of 2009, the Company expects total revenue of between $1.1 billion and $1.2 billion, which includes license and royalty revenue between $100 million and $110 million. The fourth quarter of 2009 will be a 14-week quarter so there will be one extra week of revenue. Fourth quarter non-GAAP product gross margin are expected to be between 25.0% and 30.0%. The Company forecasts fourth quarter non-GAAP operating expenses of $190.0 million to $200.0 million. SNDK expects to make a total capital investment of less than $475.0 million for 2009, compared to its earlier estimate of $500.0 million. According to Reuters Estimates, analysts on an average were expecting the Company to report revenue of $896 million for the same period and $3,467 million for the full year.

Source: Yahoo! Finance, SEC Filings.

Shares of the Company have more than quadrupled since plunging to $5.07 last November. In 2009, SNDK’s stock price has doubled. Shares are still about 50% cheaper than it used to be back in 2007, before the price war started. Recently, the Company’s shares jumped 10% on impressive report related to SNDK’s operational performance, breaking the 52-week-high barrier. The Company’s stock has ranged from $5.07 to $24.61 over the past year.

Analyst Consensus

Seventeen analysts polled by Thomson Reuters consider the “Hold” strategy for SNDK.

Source: http://markets.ft.com/tearsheets/analysis.asp?s=sndk

Investment Highlights

From a manufacturing production standpoint resulted as a consequence of the global crisis, the Company has been operating its fabs at full utilization rates since July and expects to maintain that going forward. SNDK’s decision late last year to participate more aggressively in the OEM space began to pay off, OEM channel becoming the Company’s No. 1 revenue generator and growing to 56% of product revenue in the third quarter from 41% in the second quarter. Total OEM revenue grew sequentially by more than $200 million with units sold increasing by 72%. The captive NAND output is allowing SNDK to develop long-term relationships with top tier OEMs and given how large these OEM opportunities are, there is substantial room for the Company to further grow its OEM business in 2010. Concurrently, SNDK’s branded retail business continues to execute well with a focus on profitability.

Recently, the Company introduced a new line of SanDisk Extreme Pro CompactFlash memory cards for professional photographers. SanDisk Extreme Pro CompactFlash cards feature a new SanDisk Power Core Controller, an memory controller that enables lightning-fast read and write speeds of up to 90MB/s1, doubling the performance from previous SanDisk high-end camera memory cards. The cards are shipping worldwide now with storage capacities ranging from 16 gigabytes to 64GB. The Company also began shipping the industry’s first 8 gigabyte and 16GB SDHC™ and 8GB Memory Stick PRO Duo™ cards using four bits per cell memory technology.

During the third quarter, SNDK launched the Sansa® Clip+ MP3 player that features a microSD^™ memory card slot. As the successor to the best selling full-featured sub-$100 MP3 player in America, the Sansa Clip+ MP3 player is fully compatible with SanDisk slotRadio™ and slotMusic™ cards, as well as any microSD card pre-loaded with music. By sliding any of these cards into the new Sansa Clip+ memory card slot, music lovers can instantly listen to premium songs and handcrafted playlists without consuming any of the device’s onboard memory.

The Semiconductor Industry Association recently reported sequentially improving chip sales for the second quarter, and its president forecast a better-than-expected outlook for PCs and cell-phone sales. According to Morgan Stanley, the $18.4 billion computer-memory industry’s three-year slump is over and chipmakers led by Samsung Electronics Co. are poised to see a market recovery that may last two years. The entire memory market has been mired in oversupply and weak demand for more than two years now, forcing the entire industry into a destructive price war. Paradoxal, but the current global recession came at a time of massive memory chip oversupply, the entire sector benefiting from a cleanup and the end of price war.

DRAM spot prices have more than doubled this year after falling more than 50% in 2008 because of an industry glut that was exacerbated by the global recession. With rising demand and limited supply for DDR3, the global Dynamic-random-access memory DRAM industry is set for a sustainable recovery that will extend into the fourth quarter and pave the way for a robust annual increase in 2010, according to iSuppli. Dynamic-random-access memory sales will probably climb 21% to $22.4 billion in 2010, the first gain in four years, after chipmakers scaled back production and as personal-computer demand rises.

Reuters reported that Samsung Electronics Co. Ltd. stated that it had no intention of pursuing an acquisition of SNDK in the future, confirming that the $5.9 billion deal was dropped definitely. The Company last year spurned an unsolicited buyout offer from Samsung for $26 per share, saying it undervalued the Company. Samsung dropped its bid in October, citing the Company’s deepening losses and uncertain outlook. Meanwhile, earlier in the year, Samsung Electronics Co. Ltd. agreed with SNDK to renew their patent cross licensing agreement covering their semiconductor patent portfolio for seven more years. In addition, the companies signed a flash memory supply agreement under which Samsung will continue to make available to the Company a guaranteed portion of its flash memory production output.

Technical Analysis

Source: http://stockcharts.com/h-sc/ui

SNDK is trading below its 13-day moving average. However, this moving average is trending higher which suggests that there has been buying interest in this stock.

SNDK’s MACD is indicating a weak bearish signal. Although the indicator is above the critical level of 0, which implies that the underlying moving averages are bullish, the MACD has crossed below its 9-day moving average or signal line. This suggests that positive momentum has begun to slow.

SNDK is trading within its Bollinger Bands. This is a normal condition and suggests that the stock is neither overbought nor oversold relative to the recent price action.

Comparative Analysis

Many tech stocks have taken a big hit in the last few years, including SNDK. After four consecutive quarterly losses, SNDK swung to a second and third quarter profits, helped by increased pricing and higher royalty revenue.

While computer memory is still a risky business until the global consumer completely renews its collective demand for spending on computers and other hardware gadgets, the memory sector became a much safer place to invest than it was a few months ago.

Source: Thomson Financial, Yahoo! Finance, Analyst estimates.

Insider Trading Activity

Net Share Purchase Activity

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