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SanDisk, Seagate Stocks Recovering

Posted on Thursday, May 28th 2009

Earlier this week, SanDisk Corp. (NASDAQ:SNDK), the leading flash memory chipmaker with annual revenue of $3.35 billion, renewed its patent licensing agreement with Samsung that was to expire in August of this year. Last year, Samsung was trying to acquire SanDisk, which is struggling with huge losses. Also last year, there was speculation that Seagate might acquire SanDisk. Let’s take a closer look at both companies’ performances.

In the new licensing deal with Samsung, the royalty rate has been reduced by about 50%. Samsung paid $350 million in royalties to SanDisk in 2008, according to analyst estimates. Last year, Samsung withdrew its $5.85 billion takeover bid and as per a recent interview with CEO Eli Harari.

Flash prices have both improved and stabilized as manufacturers have cut production. Since December, flash prices have almost doubled to $2 per GB. SanDisk expects to hit full utilization rates in fab 3 and 4 in the second half of the year. But the company has been incurring huge losses and has a long way to go before its own situation stabilizes.

Its first quarter results beat analyst estimates, driven by better demand and cost reductions. Revenue declined 22% to $659 million, beating estimates of $538 million. Net loss was $208 million, or $0.92 per share, versus net income of $11 million or $0.05 per share last year and loss of $1.86 billion or $8.25 per share last quarter. Excluding charges, net loss was $108 million, or $0.48 per share versus analyst estimates of loss of $0.76 per share.

Product revenue was down 19% y-o-y and 21% q-o-q to $588 million. License and royalty revenue was down 43% y-o-y and 41% q-o-q to $71 million. Total megabytes sold increased 166% y-o-y and 9% q-o-q. The average price per megabyte sold declined 69% y-o-y and 27% q-o-q.

Total cash, cash equivalents, and short- and long-term investments at the end of the first quarter was $2.38 billion versus $2.54 billion last quarter. SanDisk also completed restructuring of the Manufacturing Joint Ventures with Toshiba for $277 million.

SanDisk expects higher prices in Q2 and based on this, expects Q2 revenue between $650 and $725 million including license and royalty revenue between $85 and $95 million. The stock is currently trading around $15.52 with a market cap of about $3.52 billion. It hit a 52-week high of $16.48 on May 6, and the shares have soared on the Samsung deal.

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On April 21, Seagate Technology (NASDAQ:STX), the leader in hard disk drives and storage solutions with annual revenue of $12.7 billion, reported third quarter results that met estimates.

Q3 revenue was down 31% to $2.15 billion on shipment of 38.4 million units that grew by 5% q-o-q but declined 10% y-o-y. Revenue was higher than the company had expected due to improved demand from 2.5- and 3.5-inch products and somewhat higher TAM. Net loss was $273 million or $0.56 per share versus a loss of $496 million or $1.02 per share last quarter.

Seagate recently announced plans to lay off 2.5% of its workforce or 1,100 employees, and thus save about $125 million annually. Since the beginning of 2009, the company has undertaken massive restructuring measures, including shutting down two operations. It has also decided not to pay dividends and expects to thus save $230 million annually. Cash, cash equivalents and short-term investments ended the quarter at $1.5 billion, up $172 million from the previous quarter.

For the fourth quarter, Seagate expects revenue to be about $1.9 to $2.2 billion and loss per share of $0.37 to $0.47. The stock is currently trading around $8.58 with market cap of about $4.22 billion. It hit a 52-week low of $2.98 on January 23.

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