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Shares of SanDisk Corp. (SNDK - Analyst Report) reached a new 52-week high of $58.58 on Friday, Apr 10, 2013 following solid fourth quarter 2012 results announced on Jan 23. Share prices soared on the back of better visibility on NAND growth and growing demand for solid state drives (SSDs).

The closing price of the memory-chip maker on Apr 10 was $58.32, representing a robust one-year return of about 39.0% and year-to-date return of about 30.4%. Average volume of shares traded over the last three months stands at approximately 3988.5K.

SanDisk delivered positive earnings surprises in the last four quarters with an average beat of 17.6%. This Zacks Rank #1 (Strong Buy) company has a market cap of $14.1 billion and a long-term expected earnings growth rate of 13.0%.

Solid Fourth Quarter Results, Growing SSD Focus

SanDisk reported adjusted earnings of 99 cents per share, crushing the Zacks Consensus Estimate of 68 cents per share. Though results fell short of the year-ago numbers by 19.9%, they were 135.7% above the prior-quarter levels. The beat was mainly attributable to solid recovery in the mobile embedded and retail businesses, strength across geographies and favorable supply/demand metrics.

Revenues of $1.54 billion dropped 2.2% year over year but jumped 21.1% sequentially. The quarter’s revenues came slightly above the Zacks Consensus Estimate and within the company’s guidance. The sequential revenue growth was mainly due to strong performances in both the original equipment manufacturer (OEM) and Retail channels.

Within the OEM channel, mobile embedded, iNAND and SSDs grew decently. Retail products witnessed solid growth due to seasonality and market share gains in most geographical regions.

Guidance

Management is positive about SSD revenue growth and better supply/demand metrics in 2013. The company is planning to focus more on iNAND technology, which is expected to drive its mobile-embedded business. Management expects SSDs to power the latest smartphones and tablets, Ultrabooks and other end-client PCs.

The company expects SSD contribution to be roughly 25.0% of total revenue moving into 2014.

Strategic Tie-up with NVIDIA

On Feb 25, SanDisk announced that its iNAND Extreme Embedded Flash Drive will power NVIDIA Corp.’s (NVDA - Analyst Report) Tegra 4 mobile processor. The combined force of SanDisk’s iNAND Extreme and Tegra 4 is expected to woo mobile customers with fast processing and digital storage experiences. Given the increasing inclination of consumers/corporate to go mobile with tablets and smartphones, the partnership between SanDisk and NVIDIA seems beneficial for both.

Estimate Revision

On the eve of first quarter earnings, scheduled to release on Apr 17, analysts seem to be optimistic about SanDisk’s outperformance given favorable NAND supply/demand situation. Also, they believe that tailwinds from Yen, market share gains in the Retail vertical and an improving handset market will provide adequate support to SanDisk’s fundamentals.

The Zacks Consensus Estimates for 2013 and 2014 rose 4.3% and 2.4% to $3.41 and $3.80, respectively, in the past 30 days. Two estimates each for 2013 and 2014 moved upward over the same time frame.

There were no downward estimate revisions for either 2013 or 2014 in the past 30 days.

Conclusion

We expect the shift toward NAND SSDs from HDD, muted NAND supply growth and better NAND pricing to be the key drivers for SanDisk’s upcoming quarters.

Furthermore, SanDisk has an Earnings Expected Surprise Prediction or ESP (Read: Zacks Earnings ESP: A Better Method) of +9.09%. This is very meaningful and a leading indicator of a likely positive earnings surprise for shares.

Other Stocks to Consider

Other stocks in the technology industry that are currently performing well and have a solid visibility include Rambus Inc. (RMBS - Snapshot Report) with a Zacks Rank # 1 (Strong Buy) and Micron Technology Inc. (MU - Analyst Report) with a Zacks Rank #2 (Buy).

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