Wednesday, December 06, 2006

Calls of Note Part 6

- Bear Stearns believes SanDisk's (NASDAQ:SNDK) current stock price presents a great opportunity for investors to accumulate the shares.

From a near-term perspective, though investors are apprehensive about pricing in 4Q, firm's early read on 4Q is that pricing is tracking within guidance of down 15-20% QoQ, based on their retail checks and analysis. While it is early to reach a firm conclusion on demand for 4Q given that December is the biggest month of the year, based on channel checks they believe bit shipments so far are likely tracking towards the higher end of guidance of 50-60% QoQ. Checks point to very strong microSD sales, which should benefit bit shipments (given its dominant share in the segment) as well as ASP (given microSD is a higher ASP/margin product relative to other card formats and is growing as a percentage of sales).

There has been concern that the NAND market will be considerably oversupplied in 2007. Bears expects the market to be only slightly oversupplied next year, as supply growth for 2007 is on the path of getting more rational.

They believe that the acquisition of M-Systems has increased the possibility of an agreement being reached between SanDisk and Hynix on royalties for NAND flash. An agreement would lead to material upside to royalty estimates.

In firm's opinion the stock is clearly undervalued. They reiterating price target of $72.

Notablecalls: I think this one's actionable. There is way too much negativity on SNDK and comments like this one will get attention. Expect to see a sizeable move.

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