How SanDisk Measures Up In a SWOT Analysis

Having written about possible reasons as to why you should hold SanDisk (Nasdaq: SNDK) for the long run, I now wish to give you a clearer picture. One of the best ways to do so is by probing the company through a SWOT analysis. This will help you understand its strengths and weaknesses, which are mostly internal in nature (as opposed to opportunities and threats, which are largely external).

Strengths

  • SanDisk has significant expertise in the field of NAND flash memory. It enjoys a leadership position in producing NAND controllers, chips meant to efficiently read and write operations of flash drives.
  • The company has managed to grow its revenue at a CAGR, or compounded annual growth rate, of 31% for the past 11 years.
  • It has a diverse range of clients, both at the B2B (business consumer) and B2C (retail consumer) level.
  • The company has increased its exposure in the high-margin, and high-growth, market for enterprise SSDs, or solid-state drives, through its recent acquisition of Pliant Technology. This is good, as the enterprise SSD market is set to grow considerably, with revenue of up to $4.2 billion by 2015.

Weaknesses

  • SanDisk's fourth-quarter inventory rose 33% from the previous year, to $678.4 million. Not only is this higher than usual, but also the company's revenue grew by just 19% for the same period. This trend can be detrimental, if demand continues to be soft.  
  • Recently, SanDisk reduced the price of its NAND flash products, as did its peers. Price competition is eating into the company's margins.
  • The company has seen significant erosion in net income margins for the last four consecutive quarters, from 36.6% to 17.8%, due to higher costs.

Opportunities

  • SanDisk is well placed to cash in on the robust demand for mobiles and tablets. According to Gartner, smartphone shipments for 2012 will rise by 35%, to 630 million units, and by 2015 this figure is set to more than double, to 1.1 billion units. JP Morgan Chase also forecasts an astounding 55.2% rise in tablet shipments to 99.3 million units for the year 2012
  • The introduction of new device categories gives SanDisk an opportunity to expand its NAND flash business. For example, smart televisions running on Google's Android software would use internal as well as removable NAND storage.
  • SanDisk's enterprise SSD products are based on the software-as-service (SAS) protocol and are designed to deliver high performance and efficiency.  This offers good growth potential in the still-nascent cloud computing market.

Threats

  • Apple (Nasdaq: AAPL  ) recently acquired Anobit, a manufacturer of NAND flash controller chips. Anobit has a proprietary memory-signal processing technology, which makes NAND chips faster, cheaper, and more durable. This may make Apple a formidable rival of SanDisk.
  • Hard-disk drives are still very popular among price-conscious consumers, as they cost a lot less per gigabyte than their SSD counterparts. Moreover, hard-drive manufacturers, such as Western Digital (NYSE: WDC  ) and Seagate (Nasdaq: STX  ) , are developing hybrid drives that use the conventional hard-disk platter technology, along with solid-state technology, to deliver high speeds along with more storage. This could significantly heat up competition for SanDisk.

The Foolish bottom line 
SanDisk needs to address some immediate concerns; however, I feel that the company is good to go for the long run based on its knowledge and experience in the NAND industry.

Don't forget to stay up to speed with the latest on SanDisk by adding it to your Watchlist. It's free and lets you stay on top of the latest news and analysis for your favorite companies.

Keki Fatakia does not hold shares in any of the companies mentioned in this article. The Motley Fool owns shares of Western Digital. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 13, 2012, at 6:50 PM, skyisfalling wrote:

    You have made two points ( which are actually one ) that SNDK has two competitors, Apple and Seagate. You could have connected the dots by claiming if these competitors are responsible for the increased "inventory". Otherwise, the whole thing is meaningless, you have just stated some facts which are known to everybody. Do something useful, say if this increase in inventory would give the management a signal of decreasing sales going forward and thus SNDK is facing a crisis, what else may it be. How about some "channel stuffing" in future? I was under the impression that SNDK is a supplier of AAPL but if AAPL is competing with SNDK then SNDK better look for the ... Say as you see it. Is SNDK a part of history?

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