How SanDisk Measures Up In a SWOT Analysis

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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 (NAS: 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 (NYS: WDC) and Seagate (NAS: 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.

At the time this article was published

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