An in-depth review of SanDisk's 2Q14 earnings and plans (Part 5 of 12)
Growth in portable devices
The rapid rise and adoption of SMAC (social, mobile, big data, and cloud) has brought explosive growth in smartphones, tablets, e-readers like the Amazon (AMZN) Kindle, and other portable devices. Fierce competition between smartphone operating systems like Google (GOOGL) Android and Windows (MSFT) is affecting the market. Their growth has increased the demand for embedded storage products like internal flash storage for portable devices.
SanDisk’s (SNDK) diverse product portfolio includes flash memory cards and embedded solutions used in smartphones, tablets, digital cameras, camcorders, digital media players, and other consumer electronic devices, as well as USB flash drives and SSD for the computing market. The contribution of embedded solutions increased from 24% in 2012 to more than 27% in 2013. Year over year, embedded revenue declined by 29%, while on a quarterly basis, it grew by 3%, contributed by iNAND solutions.
The chart above shows the increased revenue growth expected from Infonetics Research in embedded devices. Mobile broadband cards revenues are expected to decline in 2014.
iNAND and X3-based embedded solutions
In May 2014, SanDisk announced a NAND Standard embedded flash drive (or EFD). It targets entry-level tablets and smartphones in China and other high-growth markets. The new 1Y nanometer 3-bit-per-cell (X3) NAND flash storage solution allows OEMs to introduce new, affordable tablets and smartphones. This especially targets China’s high-volume budget mobile device market. The company reported that its embedded storage sales in China grew 570% from 2012 to 2013.
So emerging markets—especially China—present an excellent opportunity for the company’s embedded solutions. This outlook is driven by mobile growth and the retail segment.
Apple – a leading customer in embedded solutions
In 2013, Apple (AAPL) was SanDisk’s biggest customer. It accounted for 20% of SanDisk’s revenues. Apple primarily purchases mobile embedded products and SSD from SanDisk.
Micron Technologies presents strong competition
To increase its embedded solutions revenues, Micron (MU) is chasing OEMs. Its reported embedded solutions revenue grew by 37% year-over-year.
SanDisk is making good progress with embedded solutions. However, too much dependence on a single customer—Apple—and rising competition are some key concerns.
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