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iPhone/iPod Beneficiary: Sandisk

Posted on Tuesday, Sep 4th 2007

In this post, I will look at SanDisk with respect to the iPhone. SanDisk does not have any component in the iPhone, but is a beneficiary all the same because of the effect iPhone is having on the NAND flash memory market. For the record, Apple’s NAND Flash provider is Samsung for both the iPod and the iPhone.

Founded in 1988,SanDisk (NASDAQ:SNDK) has grown to be one of the world’s largest supplier of flash memory data storage products with revenues of $3.3 billion in 2006. Based in Milpitas, California, the company has more than 2,000 employees worldwide. SanDisk manufactures and sells retail and OEM flash memory cards, Cruzer® USB flash drives, and embedded solutions. Its products are used in digital cameras, multi-function mobile phones, USB flash drives, MP3 music players, and other digital consumer devices. SanDisk also licenses its technology to companies. It has more than 600 issued U.S. patents, and more than 300 foreign patents.

The Company owns 49.9% of three Flash ventures with Toshiba Corporation: FlashVision, Flash Partners, and Flash Alliance. It acquired Matrix for $296.4 million in January, 2006 and msystems in November, 2006 in an all stock transaction. Toshiba is where Flash memory technologies were invented, so the fact that Sandisk has a close alliance with Toshiba, matters.

For Q2 fiscal 2007, SanDisk reported revenues of $827 million, a 15% increase on a year-over-year basis. GAAP net income in the quarter decreased to $28 million, or $0.12 per diluted share from $96 million, or $0.47 per diluted share, in the second quarter of 2006. The decrease was due to declines in the average selling prices of NAND flash-memory chips. During Q1 2007, the company implemented a cost cutting restructuring plan including workforce reductions and closures of redundant facilities that could see it saving approximately $21.7 million annually.

However, with the increasing demand for NAND Flash especially from Apple’s iPhone/iPod and its competitors, the NAND prices are firming up. The company expects revenue to be in the range of $855 million to $940 million for the third quarter. Its stock has done well over the year, especially before and after the launch of the iPhone. It is currently trading in the range of $51 to $57. Its 52-week range is $35.82 – $62.24, but from March onwards, the stock has mostly maintained an upward trend.

SanDisk has also launched its Sansa line of MP3 players, directly competing with Apple’s iPod, and has captured the No. 2 spot in that market. Consumers unwilling and unable to afford the higher price tag of the iPod have rewarded Sandisk with their business. It has also introduced its Sansa video players to tap into the growing online video trend. I will be covering the major online video beneficiaries soon in further detail.

In summary, Sandisk’s current growth is due to the surge in MP3 players, music/media phones, and the overall convergence device movement. This trend will continue for the foreseeable future, offering the company continued momentum. The additional trend of online video may only add to their happy times.

SanDisk Corp. (SNDK)

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