Skip to main content

How bad are things at SanDisk?

Things seem to be going from bad to worse at SanDisk (SNDK).

Last Friday, the stock jumped on news that Samsung might be interested in acquiring the company. Enthusiasm then began to wane when SanDisk's chief executive said the company did not need to be acquired.

Today, SanDisk suffered a downgrade when a Lazard analyst offered the following comment on the potential acquisition:

"...this move is highly unlikely and is aimed at putting pressure on SanDisk in its royalty negotiations."

He also thinks the NAND sector is doing worse than most analysts acknowledge.

Furthermore, word in the Taiwan memory industry indicates that SanDisk is approaching customers for possible sales of NAND flash in wafer or die form. This is unusual in that SanDisk typically sells finished chips and flash modules. The takeaway here is that SanDisk's inventory levels are unusually swollen and the company is trying to move product any way it can. Another way of putting it is that SanDisk's capacity is exceeding current demand.

I used to follow SanDisk closely and considered the NAND flash market to be much stronger than the DRAM market. Now it seems that the state of the NAND industry has spiraled down to the same low margin commodity status that has bedeviled DRAM producers for years. We have seen an influx of new producers over the last few years and a corresponding drop in prices per megabyte. In terms of the effect on SanDisk, not even leadership in intellectual property has been enough to maintain previous levels of profitability. Indeed, Lazard indicates that royalties are likely to be squeezed as well as margins.

SanDisk under $10 a share might be attractive but, for now, there is just too much bad news to consider the company a buy.

Disclosure: none

Comments

Popular posts from this blog

Unlock Stock Market Profits - Key #1

This is the first in an ongoing series of articles where I discuss what I feel are keys to successful investing. It is based on a post that provides a summary of the ten keys that individual investors should use to identify profitable stock trades. (Click here to read the original post)

There are two basic steps to investing. First, you need to find stocks that seem to have some potential. Then you have to determine whether these stocks are actually good investments. There are many stocks that at first glance look interesting, but further research reveals that there are too many negatives to warrant taking a position.

This first post in the series starts at the beginning: getting good investment ideas.

Key #1: If something special is happening to a stock, it will be reflected in some kind of unusual activity in the markets.

As individual investors, we will never be the first to know; however, unusual activity can be an early sign that allows us to follow the Wall Street professionals and …

Unlock Stock Market Profits - Key #4

This is the fourth article in a series of posts describing 10 tools to help you identify and evaluate good investing ideas. It is based on a post that provides a summary of the ten keys that individual investors should use to identify profitable stock trades. (Click here to read the original post)

With this fourth post, we will continue another step along the path of finding stocks that seem to have some potential. The first post in the series discussed how to use unusual activity to identify investing ideas. The second post described how to use stock screeners. The third post described how to use lists of new highs and new lows. This post will focus on identifying social or business trends in order to find investing ideas.

Information on new trends might turn up anywhere. In conversation with friends or business associates, in newspapers or magazines, on TV or though your work. The key is to be aware of trends and how they start, stop or change. We'll start by describing what to lo…

Durable Goods report for Sept just so-so but Computer segment is on fire

The Durable Goods advanced report for September 2011 was released on Wednesday.

I like to dig into the Durable Goods report because it can be useful for seeing how tech in aggregate is performing and how the sector may perform in the future. I always focus on two particular measures: shipments and new orders. Let's see how it played out last month.

Shipments -- 

I generally give less importance to Shipments since this is a backward looking measure reflecting orders that have been confirmed, manufactured and shipped. It's similar to earnings reports -- it's good to know but the data is in the past and we're more interested in the future. The following chart shows how September shipments looked for the overall tech sector:


Results for the overall tech sector were a bit weak but take a look at the next chart which tracks the Computers and related products segment:


Results here were actually quite good and, to make things even better, the previous month was revised upward.

N…