Sandisk's Flash Memory Cards Business Supports $65 Value

SanDisk is one of the leading designers and manufacturers of NAND flash storage solutions. NAND products are re-writeable, non-volatile semiconductor memory devices that retain content even when the power is turned off. NAND is ideal for mass-storage devices due to its fast erase and write times, high density, and low cost per bit relative to other solid-state memory. SanDisk’s flash memory cards segment, which primarily sells flash storage for smartphones and feature phones, is the company’s biggest division and makes up approximately 25% of its value.

We think that much of SanDisk’s unit sales growth over the next few years will come from the robust sales growth of smartphones, which is a key driver within the flash memory card division. We however forecast the average selling price for NAND Flash per Gigabit to continue declining, albeit at a slower pace, for the rest of our forecast period. Below we take a look at key trends affecting this division, and we have a $65 price estimate for Indoor Positioning System.

Since the launch of Apple’s iPhone in 2007 followed by the introduction of Android, the smartphone market has seen rapid growth. In addition to communication, smartphones have enabled people to perform more tasks comfortably anytime, anywhere. With a huge number of apps being designed for every small task imaginable, smartphones have truly changed the way of life.

The number of smartphones sold globally increased from 120 million in 2007 to nearly 660 million in 2012, witnessing 40% yearly growth in units sold. The share of smartphones in the global mobile market (around 1.8 billion devices each year) has increased to 40% in 2012 from sub-10% in 2007.

The trend is expected to continue going forward with demand coming from low penetration in emerging markets including China, Brazil and India. Worldwide smartphone sales are projected to cross 900 million units this year to surpass feature-phone sales. By the end of 2017, over 1.5 billion smartphones are expected to be shipped worldwide or about two-third of the global mobile market. The rapid rise in global shipments for smartphones will be the key growth driver in the flash storage industry.

We are seeing strong NAND content growth in smartphones. As the quality of media content improves with higher resolution pictures and high definition videos, the demand for more local storage capacity will grow. Further, the growing use of applications (especially for productivity) in smartphones is increasing the need for greater local storage on devices. We therefore expect the average capacity of flash memory in smartphones to grow by almost 20-25%, a bit slower than the historical growth. This is due to the growing threat from cloud storage services like iCloud, Dropbox, etc., that takes some of the load off of local memory storage for accessing data.

Reacting to the rapid rise in sales of smartphones and tablets coupled with the anticipated shift towards ultrabooks and SSDs, many chip manufactures ramped up their production capacities. However, the growth in ultrabooks and SSDs did not meet initial expectations which led to a supply glut in the NAND memory market. The excess supply coupled with the current macroeconomic headwinds further drove down NAND prices that were continuously declining on account of intense competition among chipmakers. We estimate that average selling prices per gigabyte for flash memory declined from around $3 in 2008 to around $0.50 in 2012.

As technology improvements lower costs, we expect this trend to continue and forecast ASPs to decline to around $0.05 per GB by 2019. The 3-bits-per-cell (or X3) technology results in lower costs and increases capacity of memory chips by allowing higher density of data to be stored on the same amount of silicon. On its investor day meet held earlier this month, SanDisk announced its next-generation process technology which is expected to further reduce costs.

However, the pace of price declines should be slower than that witnessed over the last couple of years. The demand-supply gap is closing with many suppliers cutting their capacities. Toshiba Corp, Japan’s leading chipmaker and a SanDisk partner, has cut its production of flash memory chips by as high as 30% on account of industry oversupply. The company has a share of close to 30% of the global NAND flash market. Additionally, the current scenario in the memory industry has forced many small players to shut down, leading to the much-needed market consolidation. This has taken some excess capacity off the market.

If you have replaced your ATM card over the past few months, you may have been given one of the new contactless Visa debit cards that are being rolled out by Irish banks. Designed to encourage the use of cards instead of cash, the contactless payments are intended to be quicker and more convenient for smaller transaction values, removing the barrier of chip and pin but still remaining secure.

But contactless cards are just the first in a new wave of payment options that Irish consumers may encounter in the near future. With mobile phones becoming ever more advanced, and near field communications becoming a standard technology in smartphone handsets, the day when your mobile phone will function as a digital wallet is coming ever closer.

Sage Pay Ireland MD Sean Wilson believes the mobile phone will be the next great innovation in the coming years for payments. “At the moment, the next major innovation is going to be driven by the consumer, and the greatest enabler is the smartphone, because we now have essentially a supercomputer in our hand. Customer expectation is [that] they want it easy, they want it accessible, convenient and secure as well,” he said.