SanDisk Corp. (SNDK) is set to announce fourth-quarter results after the closing bell on Jan 21. It is worth noting that SanDisk has outperformed the Zacks Consensus Estimate in all the four preceding quarters with an average positive earnings surprise of 9.2%. Let us see how things are shaping up for this announcement.
SanDisk’s chances of beating earnings estimates in the next quarter appear doubtful going by the Zacks Rank #5 (Strong Sell) and Zacks negative Earnings ESP of 3.48% allotted to the shares. We caution against stocks with Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.
Digging Into the Details-
Recently, SanDisk lowered its revenue outlook for the fourth quarter of 2014 based on a soft demand scenario.
The company expects to earn $1.73 billion in the fourth quarter of 2014, lower than the previous guidance of $1.80 billion to $1.85 billion. The leading memory chip maker for smartphones and tablets also expects its fourth quarter non-GAAP gross margin to be roughly 45% compared to the earlier guided range of 47%–49%.
Lower-than-expected demand from both iNAND products and retail sides of the business led to the weak revenue outlook. Uncertainty at smartphone makers also contributed.
Several fast-growing markets, such as client and consumer PCs, smartphones and tablets, are using more NAND memory. Additionally, the yet-to-take-off ultrabooks will also use more NAND. In such a scenario, weaker-than-expected sales from NAND flash memory chips could be an indication of market share loss.
Nevertheless, SanDisk remains positive on embedded solutions and enterprise SSD revenue growth, favorable product mix and better supply/demand metrics in 2015. Given the strong demand from OEM customers and enterprise demand at the 19-nanometer technology node, SanDisk expects bit supply growth to be at the lower end of the range of 30% to 40%. The company also expects revenues from enterprise SSD to surpass $1 billion in 2015.
Earnings Estimates Slumped
Following the most recent revenue guidance, analysts lowered their earnings estimates for fiscal 2014. The Zacks Consensus Estimate for 2014 EPS moved from $5.31 over last 60 days to the current level of $5.10. Similarly, the 2015 estimates have moved from $5.94 to $5.39 for the same time period.
SanDisk Recently Reported Earnings
On Oct 16, SanDisk reported adjusted earnings of $1.31 per share, which came ahead of the Zacks Consensus Estimate of $1.20 per share. Total revenue increased 7.5% on a year-over-year basis to $1.746 billion, which came ahead of management’s guided range of $1.675 billion–$1.725 billion. However, reported revenues lagged the Zacks Consensus Estimate of $1.760 billion.
Revenues from Commercial channels were strong, aided by client and enterprise class SSD sales. Moreover, the strategic acquisitions of Fusion-io Inc and SMART Storage Systems are expected to expand SanDisk’s offerings in the Enterprise SSD segment.
Our Take
Lackluster PC sales, competition from Micron Technology Inc. (MU) and currency fluctuations remain headwinds. However, we remain positive on management’s expectations of a turnaround in the coming quarters and strong secular demand for its storage products.
It is also worth mentioning that Apple Inc. is currently a major customer of SanDisk. Hence, we believe that price and cost benefits as well as a long-term NAND supply agreement with a company like Apple will help SanDisk to outperform the NAND market.
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