Perhaps this will lessen your anxiety somewhat. Summary of Sumit's presentation yesterday at the Merrill conference, from Merrill. They are bullish on Sandisk as well as Micron, although I think more so on Micron at these prices.
Management guidance positive overall
Sumit Sadana, executive vice president & chief strategy officer at SanDisk,
presented at our 2013 Global Tech Conference in San Francisco on 5 June. The
key takeaways: (1) Global NAND supply tightness due to the low impact from new
tech (3D, 1ynm, etc), which requires a more complicated manufacturing process
and consequently low yield (e.g., 3D cannot be a mainstream even in 2015 while
1ynm/1znm migration will likely slow in 2013-14); (2) NAND demand continues to
be solid, led by SSD and embedded systems (smartphone, tablet) – even retail
cards and USB drives continue to be profitable with a more favorable competitive
landscape (fewer players); (3) Cost competitiveness with minimal execution risks
(unlike Samsung, SanDisk's 3D comes after 1ynm/1znm nodes to minimize the
start-up cost); 4) More effective benefit from yen weakness, particularly in 2H13,
without FX-hedging burdens (in 2Q and early 3Q, FX was hedged at ¥86-95/US$ vs.
currently at ¥99/US$) – Japan JV fabs are mostly denominated in yen; and (5) Strong
balance sheet (net cash US$4bn) and record high FCF at low capex spending.
FAQs: 3D, SSD, capex burden and dividend
Management's answers to frequently-asked investor questions were very clear,
which collectively implies the following upside catalysts: (1) 2D (1ymn, 1znm) is
more cost competitive vs. 3D even in 2014-15; (2) OEMs' resistance to 3D is
possible due to system instability (e.g., lack of efficient controller) and expensive
initial prices; (3) higher growth in enterprise SSD vs. retail/client SSD targets; (4)
heavier capex burden per wafer to deploy 1ynm vs. 19nm (lower bit growth using
1ynm) – slow migration from 19nm to 1ynm/1znm and minimal silicon wafer
capacity expansion at Japanese JV fabs (captive capacity: 208k wpm) planned
currently; (5) disciplined capex spending (the 2013 target is unchanged at the
US$1bn range, which includes JV fabs); and 6) good execution of share buyback
($300mn YTD).
Reiterate Buy; consensus too low, up-cycle possible
We reiterate our Buy rating on SanDisk – one of our global top picks for the
memory chip sector. Although SanDisk has outperformed SOX (YTD: 32% vs.
21%), its multiples still appear low based on our estimates for 2H or 2014 (P/E
8.1x, PBR 1.4x). The 2Q results will likely exceed consensus at higher NAND
prices (OPM: 26% likely vs. 23%), in our view, and our 2014E EPS is about 50%
higher than consensus, which seems to have not fully reflected yen weakness,
the up-cycle of the ASP trend, and the cost structure even without 3D. |
