Good Time to Buy SanDisk

On August 31, just around the time I wrote my last post on Sandisk, it announced the introduction of Memory Stick Micro (M2) flash memory cards that would be mainly used in Sony Ericsson mobiles. The price is $149.99 for 8Gb and $99.99 for 4Gb.

On October 18, SanDisk (NASDAQ:SNDK) released its third quarter earnings. Revenue for the quarter increased 38% y-o-y to $1.037 billion. GAAP net income was $85 million, or $0.36 per diluted share, down 17% y-o-y and up 203% sequentially. Product revenue was $919 million, up 36% y-o-y and 28% sequentially. License and royalty revenue was $119 million, up 52% y-o-y and 11% sequentially.

USB flashdrives and mobile cards made record performances. In the USB market, it reached the top position in the European market in August. During Q3 alone, SanDisk shipped more mobile card units than it did in the whole of 2006. Demand was so strong that SanDisk’s supply was constrained and Fab 3 reached its maximum output. Fab 4 in Japan started production and is expected to aggressively grow its captive supply in 2008. SanDisk also opened a captive production facility in China that will focus on assembly and testing of advanced Flash memory cards.

Total megabytes sold in Q3 increased 248% y-o-y and 54% sequentially. However, average price per megabyte sold went down 61% y-o-y and 16% sequentially (better than 26% decline in Q2).

For the Q4 holiday season, SanDisk expects strong demand and megabyte growth to be in the range of 45% to 60% sequentially and 200% growth for 2007. However, annual 2007 ASP decline is expected to be in the low 60% range. Q4 product revenue is expected to be between $1.05 billion and $1.2 billion. License and royalty revenue is expected to be about $119 million in Q4, same as Q3.

On November 7, its chairman and chief executive, Eli Harari exercised options for and sold 50,000 shares of common stock for $43.36 to $44.57 each. Its stock is currently trading around $36 after hitting a 52-week low of $34.43 on November 21. Market cap is around $8.3 billion.

I have to say, I still like this company, and if you are looking for things to buy when the market is low, and the peak retail season is round the corner, Sandisk is a much better bet than the retail stocks.