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The iPad’s Effect On The Storage Industry

Posted on Friday, May 21st 2010

With Apple’s iPad sales soaring to more than a million, shares of SanDisk (NASDAQ:SNDK), the leading flash memory chipmaker with annual revenue of $3.15 billion that makes the flash memory used in the iPad, are also rising. SanDisk shares have tripled over the past year, while those of the more traditional hard drive maker Seagate (NASDAQ:STX), the leader in hard disk drives and storage solutions with annual revenue of $9.8 billion, have increased by about 1.5 times. Let’s take a closer look at the performances of SanDisk and Seagate.

As consumer demand for gadgets like smartphones, tablets, netbooks, MP3 players, and digital cameras continues to increase and with social networking fuelling this trend, SanDisk stands to continue to benefit greatly. Over the past three years SanDisk has shipped over 1 billion memory units, and it expects to ship another 1 billion units over the next two years.

The storage giant Seagate also stands to gain because all the data shared and created needs to be stored somewhere. Seagate is also branching out into the enterprise flash drive market. It recently launched a digital media player, GoFlex TV, that can be used to move content from the computer to the TV and accesses online video site Netflix’s collection of movies and streams them directly to the TV.

In April, SanDisk reported first quarter revenue of $1.1 billion, up 65% y-o-y but down 12% q-o-q. It was the first quarter ever in which the company achieved revenue of over a billion dollars. Net income was $235 million, or $0.99 per share, compared to loss of $208 million, or $0.92 per share, last year and net income of $340 million, or $1.45 per share, last quarter. Cash and short- and long-term marketable securities increased sequentially by $279 million to nearly $3.3 billion. Q4 coverage is available here.

The number of units sold grew 52% y-o-y and decreased 3% q-o-q. About 49% of product revenue came from the mobile phone market, up from 38% last year and virtually nothing five years ago.

Based on its strong performance, SanDisk has raised its 2010 full-year revenue range to $4.5 billion to $4.8 billion. For the second quarter, it expects revenue of $1.10 billion to $1.175 billion. President and Chief Operating Officer Sanjay Mehrotra sold 72,600 shares for $3.2 million, for an average of $43.56 a share, on May 3 and May 12. The stock is currently trading around $39.66 with market cap of about $9.12 billion. It hit a 52-week high of $44.89 on April 26 following the results announcement.

Chart forSanDisk Corp. (SNDK)

Also in April, Seagate reported third quarter revenue of $3.05 billion, up 42% on a record shipment of 50.3 million units, representing a 31% increase over the year. Net income was $518 million or $1 per share. The company ended the quarter with about $2.4 billion in cash and repurchased shares for about $250 million in the quarter. Q2 coverage is available here.

Seagate shipped 24.6 million HDDs in the desktop space, and the TAM was 65.1 million units. It shipped 13.7 million units of HDDs into the mobile compute market, up 54%. The overall TAM in the mobile computer space was approximately 71 million units in the March quarter, up 65%. Seagate leads the desktop market, while its rival Western Digital leads the mobile market. In the recent quarter, Western Digital’s total shipments of 51.1 million were more than Seagate’s. Seagate was the overall market leader in 2009 with a 31.4% share, and Western Digital is close second with 29.6%. The mobile market is expected to outperform the desktop market in 2010, and analysts also expect Western Digital to overtake Seagate.

Seagate said that it expects revenue of about $2.85 billion to $3.05 billion and EPS of $0.81 to $0.85 for the fourth quarter. The stock is currently trading around $16.10 with market cap of about $7.85 billion. It hit a 52-week high of $21.45 on March 1.

Chart forSeagate Technology (STX)

Last year saw both stocks dipping to five-year lows, but things are finally looking up thanks to the recovery in technology spending and the iPad.

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