It seems that all is not going well with the flash memory maker SanDisk Corporation SNDK. After concluding 2014 on a rather dismal note, it appears that the company will go further downhill in 2015.
This is evident from the fact that the Milpitas, CA-based chipmaker lowered its revenue guidance for the first quarter of 2015 to $1.3 billion from the range of $1.40 to $1.45 billion (mid-point $1.425 billion).
According to the company, the reduced revenue forecast was mainly due to “certain product qualification delays, lower-than-expected sales of enterprise products and lower pricing in some areas of the business.”
Furthermore, SanDisk expects the above-mentioned factors to continue to negatively impact its financial performance throughout the year. Therefore, it now expects 2015 revenues to be lower than its previous guidance range of $6.5–$6.8 billion. Additionally, the company has withdrawn all other forecasts for both the first quarter as well as full year.
Prior to this, the company, in January, lowered the fourth-quarter 2014 revenue forecast before announcing the final results on Jan 21, due to weaker-than-expected demand for its retail products and flash-drive memory chips. The company had also mentioned that it lost a major customer during the quarter. Moreover, it was reported by various sources that SanDisk did not get a significant boost from sales to Apple, which in turn compelled it to provide a tepid revenue outlook.
The recent cut in revenue forecasts resulted in more than 18% plunge in this Zacks Rank #4 (Sell) company’s share price during yesterday’s trading session. The company’s shares have dropped over 32% year-to-date.
The company’s revenue warnings aggravated a recent sell-off in semiconductor stocks. Shares of Skyworks Solutions SWKS, STMicroelectronics STM and Freescale Semiconductor FSL were down 2.7%, 3.7% and 2.4%, respectively.
However, we believe that SanDisk’s warnings are mainly company specific and the broader semiconductor industry remains attractive. We consider that semiconductor stocks are likely to have a smooth ride in 2015 with the growing need for technology-based devices by consumers and enterprises alike.
According to the Semiconductor Industry Association (SIA), worldwide semiconductor industry recorded sales growth of 9.9% in 2014 to $335.8 billion. Also, the report indicated worldwide semiconductor sales growth of 3.4% in 2015, followed by 3.1% improvement in 2016. The industry is experiencing growth primarily due to developing end markets and new product offerings, supported by process and yield improvements by semiconductor manufacturers.
Also, expectations of more meaningful growth in the U.S. economy in the coming quarters are a net positive for this economically strong sector. Continued strong adoption of tablets and smartphones, automotive electronics and the emergence of the new category of wearable devices have led to stronger demand for the processing and sensing devices that run them. So they are all factors driving the semiconductor industry this year.
Obviously, positive momentum has not been on SanDisk’s side. Nevertheless, the semiconductor segment has several promising stocks to choose from. Based on growth, valuation and earnings statistics, we have picked three such stocks which have a strong potential to yield solid returns for investors over the next 1-3 months.
Rudolph Technologies Inc. RTEC
Rudolph Technologies is a worldwide leader in the design, development, manufacture and support of high-performance process control metrology, defect inspection and data analysis systems used by semiconductor device manufacturers. The Zacks Rank #1 (Strong Buy) company has a forward P/E of 19.59, much lower than the industry average of 28.20.
The Zacks Consensus Estimate has doubled over the last 60 days to 8 cents per share for first-quarter 2015. The company surprised last quarter, beating our EPS estimate by 233.33%. It has surpassed our earnings estimate in 3 out of the last 4 quarters by an average of 220.83%. Rudolph is expected to report its earnings on Apr 27.
Tessera Technologies Inc. TSRA
Tessera Technologies develops semiconductor packaging technology that meets the demand for miniaturization and increased efficiency of electronic products. The Zacks Rank #1 (Strong Buy) company has a forward P/E of 21.29, much lower than the industry average of 28.20.
The stock has witnessed 2 positive and no negative estimate revisions over the last 60 days for first-quarter 2015. Our EPS consensus estimate has gone up from 53 cents for the to-be-reported quarter to 64 over the past 60 days. The company has beaten our earnings estimate in the last 4 quarters by an average of 379.27%. Tessera is expected to report earnings results on May 5.
Avago Technologies AVGO
Avago Technologies develops and supplies analog, digital, mixed signal, and optoelectronics components and subsystems. The Zacks Rank #1 (Strong Buy) company has a forward P/E of 16.11, much lower than the industry average of 39.20.
The stock has witnessed 12 positive and no negative estimate revisions over the last 60 days for second-quarter fiscal 2015. Our EPS consensus estimate has gone up from $1.50 for the to-be-reported quarter to $1.82 over the past 30 days. The company has beaten our earnings estimate in 3 out of the last 4 quarters by an average of 16.49%. Avago is scheduled to report the earnings results on Apr 6.
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