SanDisk (UNKNOWN:SNDK.DL) reported its first-quarter earnings last week and blew analysts' expectations out of the water. The company earned $1.44 in non-GAAP EPS on $1.51 billion in revenue. That's a 14% upside surprise on earnings. As a result, investors sent shares up 10% the day after earnings.
On the company's conference call, CEO Sanjay Mehrotra and CFO Judy Bruner answered questions, and analysts liked what they heard. Here are some of the most important quotes from the call.
SanDisk got some good news in the middle of last quarter, when it was reported that Samsung (NASDAQOTH:SSNLF) is ramping its 3D NAND technology slower than originally anticipated. SanDisk won't roll out 3D NAND until the second half of next year. In the meantime, it's working on optimizing its 2D technology.
To that end, Mehrotra outlined the product ramp for its 1Y and 1Z technology.
Our 1Y technology continues to ramp well, and we expect to achieve more than half of our bit supply output on 1Y in the second quarter. ... Our 1Z technology continues to show promising early results, and we expect product ramp to begin toward the end of 2014.
Meanwhile, SanDisk has been able to decrease its cost per gigabyte faster than price declines. Judy Bruner went over this in her prepared remarks.
Our blended cost per gigabyte improved 3% sequentially and 23% year over year. Our blended average selling price per gigabyte declined 3% sequentially and 7% year over year, benefiting from our ongoing strong portfolio mix shift.
That 23% year-over-year drop in cost per gigabyte is on the back of the 1Y ramp. And while the company is benefiting from growth in enterprise SSDs, it's also showing that it can wait on ramping 3D NAND. Additionally, the slow ramp from Samsung means there's less pressure on pricing.
More on pricing
SanDisk has focused on serving the high-end markets in most of its products, and that means higher margins. SanDisk has a strong brand, and Mehrotra believes that its customers understand what its brand stands for.
I think the market is definitely valuing the SanDisk power of vertical integration, our flash memory, high-quality flash memory, our system expertise, our ability to really build the memory, and the system expertise into how we test the products and assure high quality levels for the product.
Bruner later added:
We are achieving higher-than-average value for our system-level solutions in many of the markets that we serve based on the quality of products, based on our system expertise, based on our vertical integration.
As a result, SanDisk's pricing is holding up better than its competition, and the company is able to command a premium on the market. Its products are arguably superior, particularly in SSDs, where SanDisk stands out in important areas such as reliability and lifetime to failure.
Gaining share in the market
It's one thing to command pricing power while improving costs while operating in a growing market, but SanDisk is also gaining market share.
Mehrotra indicated that the company's presence in the SSD markets, both enterprise and client side, is increasing.
We are gaining share both on the enterprise SSD side as well as client SSD side. ... We are focused on broadening our product portfolio and, as I mentioned earlier, our vertical integration, our ability to bring high technology, (and) high-quality solutions with a strong delivery performance. ... So, all of this combined is helping us gain share in the SSD market, and this all aligned very well with our strategy of continuing to strengthen the mix of higher value solutions in our business.
The enterprise SSD market is expected to grow rapidly in the coming years, and SanDisk is positioned well to take share of the market through superior hardware as well as innovative software, as Mehrotra noted on the conference call. As a result, investors should expect enterprise SSD revenue to make up a larger share of company revenue, increasing overall margins.
Keeping it going throughout 2014
SanDisk is well-positioned to continue its momentum in earnings throughout 2014. While it might not experience 71% growth every quarter as it comes up against tougher comparables, the business is sure to see a strong impact from its ability to maintain pricing while gaining market share. We'll find out if 1Z can improve costs as well as 1Y has done, and how the company responds to pricing pressure from competition like Samsung as it slowly ramps up its 3D NAND process. For 2014, however, the company appears very well-positioned.