In the technology business, staying innovative is central to a firm’s success. Some data storage companies seem to understand this and focus on rising technologies like Solid State Drives (SSDs), which position them to benefit from the increasing demand and the switch to these technologies.
In this article I will take a look at three firms that seem to be leading in the SSD segment and offer compelling growth opportunities for the upcoming years. These are: SanDisk Corporation (NASDAQ:SNDK), Micron Technology, Inc. (NASDAQ:MU) andWestern Digital Corp. (NASDAQ:WDC).
SanDisk leading the market
SanDisk Corporation (NASDAQ:SNDK) is a leader in the data storage industry and specializes in flash memory storage products used in both consumer electronics and industrial markets. As the demand for various appliances in which SanDisk products are used -including cameras, digital music players, smartphones and tablets- increases, the company will earn substantial profits. As the demand is greater than the production in this area, pricing should trend upwards, widening margins.
There is one feature that truly differentiates SanDisk from its competitors: its vertical integration. The firm not only manufacturers Negated And or Not AND (NAND) flash memories, through a joint venture with Toshiba, it also supplies chips for manufacturers like Apple and HTC to embed into their gadgets and “sells its own branded memory cards and USB drives via retail sales channels. Further, SanDisk’s strong technology position and intellectual property (IP) portfolio, which contains some key NAND flash memory patents, allows the firm to collect licensing and royalty revenue from its competitors,” according to Morningstar.
For the coming years, SanDisk Corporation (NASDAQ:SNDK) has made a bet on Solid State Drives (SSDs) and is now focusing its efforts on market penetration. The company expects this segment to provide about 25% of revenue by 2014, and 35%, by 2016. Another good looking initiative is its NVIDIA partnership, combining NVIDIA’s Tegra 4 graphics with SanDisk’s iNAND Extreme storage, allowing smartphone and tablet makers to create faster and more efficient products. This should attract the attention of some major customers in the quarters ahead and drive income growth in the longer term.
In spite of the cyclicality inherent to the NAND memory segment and the commodity-like nature of SanDisk´s products, I would rate this firm as a STRONG BUY. Poised to comfortably outperform the market, with an expected consensus Earnings Per Share growth of 28.4% per year over the next five years and trading at 30.4 times its earnings (a 16% discount to the industry average), this is a stock that you wouldn’t want to miss. Add it to your portfolio before its price gets any higher.
Micron: An important contender
Micron Technology, Inc. (NASDAQ:MU) is one of SanDisk’s main contenders in the semiconductor memory space. Despite increased competition, the cyclicality in the industry and a 52-week high price, I’d recommend BUYING and holding this stock: its scale and wide product portfolio should help it navigate these troubled waters without major inconveniences.