SanDisk Up on Q1 Earnings Beat - Analyst Blog
April 17 2014 - 9:00AM
Zacks
Shares of SanDisk
Corp. (SNDK) went up 5.8% in after-hours trading following
better-than-expected results in the first quarter of 2014. The
strong results were mainly attributable to strong client and
enterprise solid state drive (SSD) sales, strength in retail
businesses and favorable supply/demand metrics.
SanDisk’s first-quarter adjusted earnings of $1.32 per share came
ahead of the Zacks Consensus Estimate of $1.17. Moreover, earnings
per share increased 70.2% from the year-ago quarter. Adjusted
earnings per share exclude amortization of acquisition-related
intangible assets, convertible debt interest but include
stock-based compensation expense.
Revenues
Total revenue in the first quarter increased 12.7% on a
year-over-year basis to $1.51 billion. It was not only toward the
higher end of management’s guided range of $1.450 billion–$1.525
billion but also ahead of the Zacks Consensus Estimate of $1.49
billion. The year-over-year revenue growth was primarily attributed
to strong demand in both client and enterprise SSDs. Notably, sales
from the SSD jumped 61% on a year-over-year basis and comprised 28%
of total revenue.
Furthermore, SanDisk’s prudent mix of high-margin embedded and
client and enterprise class SSD solutions and products boosted
Commercial revenues (65% of first-quarter revenues), which grew 18%
year over year. However, mobile embedded revenues (part of
commercial revenues) remained flat on a year-over-year basis,
primarily due to strong demand from iNAND offerings, which offset a
decline in custom embedded solutions. The decline was due to a
shift by a customer to client SSD solutions.
Additionally, SanDisk’s revenues from retail channels (35% of
first-quarter revenues) increased 4% year over year driven by
growth in USBs, SSDs and mobile cards.
During the quarter, SanDisk unveiled the 128GB Ultra microSDXC
UHS-I memory card. The newly-launched card that will be available
worldwide is expected to improve the computing experience
(especially on mobile devices). In a separate development, SanDisk
also introduced an enhanced version of iNAND Extreme embedded flash
drive (EFD).
Operating Results
SanDisk’s adjusted gross profit (including stock-based compensation
but excluding other one-time items) for the quarter came in at
$770.9 million, up 42.4% form the year-ago quarter. The
year-over-year growth was primarily aided by higher SSD product
mix, strong growth in branded retail channels and low revenues from
custom embedded solutions.
SanDisk reported 17.8% year-over-year increase in adjusted
operating expenses. As a percentage of revenues, operating expenses
were up 92 basis points (bps) from the year-ago quarter. The
increase was primarily due to higher research and development
expenses, sales and marketing expenses and general and
administrative expenses.
The company reported operating profit (including stock-based
compensation but excluding other one-time items) of $446.4 million,
up 67.8% from the year-ago quarter.
Excluding the amortization of
acquisition-related intangible assets, convertible debt interest
expense and related tax adjustments but including stock-based
compensation expense, net income for the first quarter came in at
$304.6 million or $1.32 per share compared with $191.5 million or
79 cents in the year-ago quarter.
Balance Sheet & Cash Flow
Cash and short-term investments were $2.81 billion versus $2.91
billion in the previous quarter. Long-term marketable securities
were $3.51 billion. SanDisk had $1.17 billion of convertible
long-term debt in its balance sheet.
SanDisk generated $357.6 million in cash from operating activities
compared with $616.8 million in the prior quarter. SanDisk
repurchased stock worth $90 million and paid dividends amounting to
$52.0 million.
SanDisk also declared a cash dividend of 22.5 cents per share for
the second quarter of fiscal 2014, payable on May 27.
Outlook
Management is positive about embedded solutions and enterprise SSD
revenue growth, favorable product mix and better supply/demand
metrics in 2014. SanDisk expects bit supply to remain unchanged in
the range of 25% to 35%. Also, the company expects to increase its
wafer capacity by approximately 5%.
SanDisk expects revenues for the second quarter to be between
$1.550 billion–$1.625 billion while the Zacks Consensus Estimate
for the same period is pegged at $1.580 billion.
SanDisk reiterated its fiscal 2014 revenue guidance in a range of
$6.4 billion to $6.8 billion. The Zacks Consensus Estimate for the
period is pegged at $6.676 billion.
The company expects its second quarter non-GAAP gross margin to be
in the range 47.0%–49.0%. The company raised its fiscal 2014 gross
margin forecast and expects it to range between 47% and 49%
(previous guidance 45% to 48%).
SanDisk expects operating expenses in the range of $315 million to
$325 million for the second quarter and $1.250 billion to $1.275
billion for full year 2014 (previous guidance $1.225 billion to
$1.25 billion). Thus, non-GAAP operating margin is expected
to range between 27% and 31% in 2014.
Our Take
SanDisk posted solid first-quarter results, with both its top and
bottom lines surpassing the Zacks Consensus Estimate. It also
provided an encouraging guidance. Revenues from commercial and
retail channels were strong, aided by higher mobile embedded and
client and enterprise class SSD sales. Moreover, the acquisition of
SMART Storage Systems is expected to expand SanDisk’s offerings in
the Enterprise SSD segment.
Lackluster PC sales, competition from Micron Technology
Inc. (MU) and currency fluctuations could hurt
fundamentals to some extent. However, we remain positive on
management’s commentary of a turnaround in the coming quarters and
strong secular demand for its storage products.
It is also worth mentioning that Apple Inc. (AAPL)
is currently a major customer of SanDisk. Hence, we believe that
with price and cost benefits as well as a long-term NAND supply
agreement with the likes of Apple will help SanDisk to outperform
in the NAND market.
Currently, SanDisk has a Zacks Rank #2 (Buy). A better-ranked stock
in the technology sector is Juniper Networks, Inc.
(JNPR), sporting a Zacks Rank #1 (Strong Buy).
APPLE INC (AAPL): Free Stock Analysis Report
JUNIPER NETWRKS (JNPR): Free Stock Analysis Report
MICRON TECH (MU): Free Stock Analysis Report
SANDISK CORP (SNDK): Free Stock Analysis Report
To read this article on Zacks.com click here.
Sandisk (NASDAQ:SNDK)
Historical Stock Chart
From Aug 2024 to Sep 2024
Sandisk (NASDAQ:SNDK)
Historical Stock Chart
From Sep 2023 to Sep 2024