Can SanDisk Beat Estimates Again?

SanDisk (NASDAQ: SNDK  ) will report its first-quarter earnings results on Wednesday as it tries to beat analysts' estimates for a sixth consecutive quarter. Earlier this month, rival Micron Technology (NASDAQ: MU  ) reported earnings above Wall Street expectations on the strength of its DRAM and NAND memory units. Both companies are benefiting from growing demand for solid state drive products, as is the more diversified Samsung  (NASDAQOTH: SSNLF  ) .

As the marginal cost between NAND flash memory and typical hard drive storage diminishes, SanDisk is looking to capitalize on the growing enterprise storage needs its technology addresses. Meanwhile, the proliferation of smart devices that use SSDs is driving growth in the industry as well. As a result, Gartner expects the total SSD market to more than double this year from two years ago, reaching $19.4 billion.

The big picture at SanDisk looks good, but let's consider what we can expect in this upcoming report.

Word on the Street
Analysts expect a strong quarter from SanDisk, increasing earnings 49% year-over-year to $1.25. Revenue is expected to climb 11.4% to $1.49 billion.

Shares of SanDisk climbed nearly 20% since its last earnings report before falling drastically earlier this month. The Fool's Sean Williams aptly pointed out that the stock was worth selling right before it reached its peak at the beginning of the month. Overall, shares have climbed nearly 3.5% since the company last reported earnings, which compares favorably to the S&P 500's performance, which is down slightly since late January.

Recent developments
Since the last earnings report, SanDisk has announced several new products at Mobile World Congress in Barcelona. Notably, its 128-GB microSD card is the highest in its format and indicates that SanDisk is still capable of squeezing capacity out of the 2D NAND array.

Nonetheless, 3D NAND will rise in importance this year as Samsung continues to develop its 3D process and Micron plans to ramp up production in the beginning of fiscal 2015. SanDisk got good news in February when Samsung pushed out its 3D NAND ramp. While Samsung is moving forward with 3D NAND, SanDisk and Micron are waiting for cost crossover with the 2D process.

As a result of the slowdown at Samsung, price declines may not be as severe as originally thought. That was a big concern going into the quarter, and Micron delivered solid average selling prices on its units. Investors should watch that SanDisk does the same, especially considering its strategy in sacrificing bit share for high-end pricing.

Another area of the report to keep your eye one is SanDisk's enterprise SSD segment. After the company closed the acquisition of SMART Storage Solutions last year, it posted its best quarter in enterprise SSD. The company expects enterprise SSD to continue growing faster than its other segments as the server market transitions to SSD over traditional disc drives.

SanDisk will also rely on improved sales in its embedded systems segment to reach analysts' estimates. With the holiday season over, gadget sales are slower, but the company thinks it can make progress in emerging markets and attract Chinese OEMs. The company's iNAND product line is aimed at the entry-level and mid-range market, and it performed well last quarter. SanDisk faces stiff competition from Micron in that market, however, so investors ought to listen during the conference call for additional color on the iNAND product line.

What to watch for
Analysts and investors have high expectations going into this earnings report. For SanDisk to deliver, it will need another strong quarter from its enterprise SSDs, and it will need to maintain ASP declines that are slower than the industry average.

When the company reports, watch for growth in its enterprise SSD division and a reduction in costs. The Japanese Yen has risen in the last quarter, so the company will realize less of a benefit from its currency exchange. SanDisk can, however, improve its cost structure as it grows its share of the SSD market and ramps up its 1Y process. Additionally, listen for additional color on the iNAND product line and 3D NAND process on the conference call.

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