Last quarter, we observed how the soaring sales of Apple’s iPad benefitted the storage industry. Eric Savitz of Barron’s reports that there are at least two dozen companies planning tablets that rely on NAND flash memory chips for data storage. Let’s take a closer look.
In July, Apple reported that it sold 3.27 million iPads since the device’s April 2010 launch. iSuppli raised its forecast of iPad sales to 12.9 million units in 2010 and 36.5 million in 2011. IDC estimates that annual tablet shipments will grow from 7.6 million tablets in 2010 to 46 million units in 2014. SanDisk, which makes the flash memory used in the iPad, is a strong beneficiary.
While all tablets use flash memory, only about 50% of mobile phones have flash memories. Trefis of Forbes reports that SanDisk, which is the flash memory leader for mobile phones, is responsible for about 33% of the flash memory shipped for the mobile market. SanDisk can be expected to have an edge in the tablet market as well and benefit from the numerous tablet models expected to be released.
SanDisk (NASDAQ:SNDK), the leading flash memory chipmaker with annual revenue of $3.15 billion, reported second quarter revenue of $1.18 billion, up 61% and 9% q-o-q. Net income was $258 million, or $1.08 per share, compared to $83 million, or $0.36 per share last year and $235 million, or $0.99 per share last quarter. Cash and equivalents increased sequentially by $422 million to $3.7 billion. Q1 coverage is available here.
Gigabytes sold grew 18% q-o-q and 116% year-over-year while ASP per gigabyte declined 8% q-o-q and 18% y-o-y. About 48% of revenue came from the mobile phone market, up from virtually nothing five years ago. What a difference the iPhone/iPad phenomenon has made in three short years!
Based on its strong performance and despite supply constraints, SanDisk has raised its 2010 full-year revenue range to $4.7 billion to $4.9 billion. Its annual revenue in 2009 was $3.15 billion. For the third quarter, the company expects revenue of $1.175 billion to $1.250 billion. SanDisk also announced that its CEO, founder, and chairman, Dr. Eli Harari, is retiring on December 31, 2010. Sanjay Mehrotra, currently SanDisk’s president and chief operating officer, will be taking over as the CEO.
SanDisk recently issued $1 billion in convertible bonds due in 2017. It intends to use the net proceeds for general corporate purposes, including capital expenditure for new and existing manufacturing facilities and development of new technologies. The stock is trading around $37 with market cap of about $8.5 billion. It hit a 52-week high of $50.55 on June 21.
Seagate (NASDAQ:STX), the leader in hard disk drives and storage solutions,
reported a disappointing fourth quarter in July mainly due to slowing consumer spending especially in the United States and Europe. Q4 revenue was $2.66 billion, up 13% on shipment of 46.8 million disk drives. Net income was $379 million or $0.76 per share. The company had projected Q4 revenue of about $2.85 billion to $3.05 billion and EPS of $0.81 to $0.85. Q3 coverage is available here.
For the fiscal year 2010, Seagate reported revenue of $11.4 billion on shipment of 193.2 million disk drives. Net income was $1.61 billion or $3.14 per share. For the first quarter, Seagate gave a conservative outlook. It said that it expects revenue of about $2.7 billion to $2.9 billion. Analysts were expecting Q1 revenue of $3.06 billion. The stock is trading around $11 with market cap of about $5 billion. It hit a 52-week high of $21.45 on March 1 and a 52-week low of $9.84 on August 27.
Seagate recently warned that its hard drive ASP could slide in September due to increasing competition from Western Digital and Hitachi, but it is hopeful that prices will bounce back on solid holiday season spending. Western Digital in the recent quarter overtook Seagate as the No.1 hard drive manufacturer in shipments. Seagate was the overall market leader in 2009 with a 31.4% share, and Western Digital was second with 29.6%. Seagate leads the desktop market and has a 65% share of the enterprise market, while Western Digital leads the mobile market.
Some analysts believe that iPad and tablet sales will cannibalize PC sales and hurt hard drive manufacturers Seagate and Western Digital. But the iPad is a content-viewing device that Seagate CEO Steve Luczo in the earnings call says will “increase the requirement for storage throughout the ecosystem.” I agree. To highlight the trend for storage further, IDC in June forecast total hard drive shipments to reach 657 million units this year, up 18%. Total revenue is expected to increase to between $34 billion and $35 billion, up from $29.6 billion last year.