Several firms are commenting on Sandisk (NASDAQ:SNDK) ahead of results:
- Thomas Weisel Partners is downgrading SNDK to SP from SO and removing their PT as its risk-reward profile appears less attractive ahead of a likely 1H07 NAND oversupply and challenges in retaining FLSH's DoK business. Although 3Q/4Q should be solid, they are stepping to the sidelines for now.
Firm expects 1H07 NAND prices to fall sharply (below $10/GB) due to supply increases and the typical seasonal demand slump. They believe there is no near term killer app that can soak up supply, and it seems Vista's NAND effect on PCs and laptops will not be enough to boost 1H07 demand.
While they love the FLSH acquisition, the firm believe SNDK may have a tough time
retaining DoK customers (e.g. Kingston & Verbatim), who do not want to ODM at their biggest competitor. Considering that DoK represents ~60% of FLSH (~$600M+), its attrition could make for a bumpy integration.
- Citigroup notes NAND fundamentals in 3Q06 were solid and remain firm entering 4Q06, a favorable nt backdrop for execution-advantaged SNDK.
Incr 3Q06, 4Q06, 2007 ests. 3Q bit growth up 300 bps to 27%, price/MB 200 bps more benign at -18% w/GM to hit high end of Mgt guidance. Revs/EPS now $733/$0.58 vs. St of $729/$0.54. 4Q06 revs/EPS to $989/$0.81 from $973/0.77 on higher base, higher GM but lower bit growth for conservatism.
Expect shares to trade well nt, as 3Q and 4Q Street ests appear low, though 1Q07 seasonality and 2007 supply are risks. That said, dour sentiment for SNDK's 1Q07 despite absence of last year's DRAM conversions and draconian 1Q07 pricing expectations suggest anything better than worst case = upside.
No change to $69 target price on modestly higher 2007 Ests, as the firm deflates valuation multiples on supply cautiousness. $69 target offers 21% upside. No change to FLSH or SFUN estimates.
- Deutsche Bank is raising SNDK's ests. heading into the results, as they believe 3Q guid. was conservative and their checks suggest that retail prices & vols have been orderly, cell phone secular trend is still intact, & 3Q for Taiwanese flash product makers has been great. But, given that shares are up ~20% since last earnings, some upside is likely already expected by market. Given that they are now ahead of street on 3Q, firm's bias would still be for the stock to be up after earnings. They retain Hold & $51 P/T due to full valuations and weak C07 NAND outlook.
Firm now models bits sold +37% QoQ, ASPs down ~19% QoQ, and GAAP GMs of 36.6% (vs. guid. +20-25% QoQ; -19% QoQ, and 32.5-34.5% resp). Ex-ESO, 3Q EPS goes to 62c (from 51c; cons 55c). They predict C07 ASP decline of 50-55%, similar to C06 (~55-60%). SNDK faces material margin compression risk in C07 given less steep cost reduction (~40% as no incremental help from 300mm/MLC).
Notablecalls: This AM, SNDK will gap down due to the TWP downgrade. Would be looking to buy
the stock for a bounce around the 54-55 level. Notice how both Citi and DB are upping their ests. That should fuel the bounce.
- Thomas Weisel Partners is downgrading SNDK to SP from SO and removing their PT as its risk-reward profile appears less attractive ahead of a likely 1H07 NAND oversupply and challenges in retaining FLSH's DoK business. Although 3Q/4Q should be solid, they are stepping to the sidelines for now.
Firm expects 1H07 NAND prices to fall sharply (below $10/GB) due to supply increases and the typical seasonal demand slump. They believe there is no near term killer app that can soak up supply, and it seems Vista's NAND effect on PCs and laptops will not be enough to boost 1H07 demand.
While they love the FLSH acquisition, the firm believe SNDK may have a tough time
retaining DoK customers (e.g. Kingston & Verbatim), who do not want to ODM at their biggest competitor. Considering that DoK represents ~60% of FLSH (~$600M+), its attrition could make for a bumpy integration.
- Citigroup notes NAND fundamentals in 3Q06 were solid and remain firm entering 4Q06, a favorable nt backdrop for execution-advantaged SNDK.
Incr 3Q06, 4Q06, 2007 ests. 3Q bit growth up 300 bps to 27%, price/MB 200 bps more benign at -18% w/GM to hit high end of Mgt guidance. Revs/EPS now $733/$0.58 vs. St of $729/$0.54. 4Q06 revs/EPS to $989/$0.81 from $973/0.77 on higher base, higher GM but lower bit growth for conservatism.
Expect shares to trade well nt, as 3Q and 4Q Street ests appear low, though 1Q07 seasonality and 2007 supply are risks. That said, dour sentiment for SNDK's 1Q07 despite absence of last year's DRAM conversions and draconian 1Q07 pricing expectations suggest anything better than worst case = upside.
No change to $69 target price on modestly higher 2007 Ests, as the firm deflates valuation multiples on supply cautiousness. $69 target offers 21% upside. No change to FLSH or SFUN estimates.
- Deutsche Bank is raising SNDK's ests. heading into the results, as they believe 3Q guid. was conservative and their checks suggest that retail prices & vols have been orderly, cell phone secular trend is still intact, & 3Q for Taiwanese flash product makers has been great. But, given that shares are up ~20% since last earnings, some upside is likely already expected by market. Given that they are now ahead of street on 3Q, firm's bias would still be for the stock to be up after earnings. They retain Hold & $51 P/T due to full valuations and weak C07 NAND outlook.
Firm now models bits sold +37% QoQ, ASPs down ~19% QoQ, and GAAP GMs of 36.6% (vs. guid. +20-25% QoQ; -19% QoQ, and 32.5-34.5% resp). Ex-ESO, 3Q EPS goes to 62c (from 51c; cons 55c). They predict C07 ASP decline of 50-55%, similar to C06 (~55-60%). SNDK faces material margin compression risk in C07 given less steep cost reduction (~40% as no incremental help from 300mm/MLC).
Notablecalls: This AM, SNDK will gap down due to the TWP downgrade. Would be looking to buy
the stock for a bounce around the 54-55 level. Notice how both Citi and DB are upping their ests. That should fuel the bounce.
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