Monday, October 30, 2006

Calls of Note Part 3

We have two firms commenting on Sandisk (NASDAQ:SNDK) this morning:

- Baird notes checks as of late last week indicate very weak NOR flash bookings for the month of December, in sharp contrast with Q3, and suggesting a drastic reduction in lead times. NOR flash trends tend to correlate with other commodity semiconductor products and represents an indicator of general end demand. Several semiconductor companies are already implementing tight expenses control and/or hiring freezes, per firm's checks. In NAND flash, they are receiving additional feedback about weak iPod 8GB nano sales, suggesting further pricing weakness in November.

Weakness in December bookings problematic for Q1 revenue and gross margin guidances. Current slowdown induced by weakening consumer demand rather previous supply issues, in firm's view.

They are reducing estimates and price target on SNDK. Tgt goes to $60 from $68. Firm's new
2007 GAAP EPS estimate is $2.14, down from $2.30.

- UBS notes NAND Spot and Contract pricing are down -60% and -58% YTD and is generally
consistent with their model. Modest Spot activity in recent weeks with the most recent trend being one of firming points to supply/demand balance into the holidays. They believe this balance and beneficial exposure to handsets, digital cameras, and MP3s favors near-term SNDK accumulation.

Views Q3 guidance for 50-60% bit growth with 15-20% ASP decline as an exceptionally solid outlook that at this juncture in the quarter looks beatable. They are modeling $980M (+30% q/q, +31% y/y) in sales and $0.81 in pro forma EPS. Without a trial jump in SG&A (mkting/promos) to $93M (prior est $69.5M), EPS est would be $0.89.

UBS believes SNDK is executing well to a sound strategy of driving down costs, driving up functionality, and sparking elasticity of demand and new applications, the most significant being NAND cards in handsets. As it does so, they are seeing rivals struggle, divert capacity, and in some cases quit the market.

Reits Buy and ups tgt to $75 from $70. No changes to ests.

Notablecalls: I suspect we will see some weakness in SNDK early on. Baird's comments sound much more convincing.

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