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SanDisk Soars on Earnings Beat

NEW YORK ( TheStreet) -- SanDisk's (SNDK - Get Report) second quarter earnings beat analysts' expectations, sending shares soaring on Friday.

The Milpitas, Calif.-based company reported non-GAAP earnings of $51 million, or 21 cents a share, on $1.03 billion or revenue for the second quarter, topping the estimates of analysts polled by Thomson Reuters, who were looking for 18 cents a share and $1.02 billion in revenue.

Revenue may have declined 14% sequentially and 25% year-over-year, but the potential in the company's enterprise business should not be underestimated, according to CEO Sanjay Mehrotra.

"I am pleased to report that our SSD [Solid State Drive, a data storage device] revenues achieved 10% of second quarter sales with growing adoption of our solutions by major OEMs [Original Equipment Manufacturer]. We also made good progress on our embedded product roadmap for mobile customers," Mehrotra said in the earnings report. "We believe that strengthening industry fundamentals and our expanding portfolio of solutions will contribute to improving financial results in the second half of 2012."

Once known for producing small storage devices, SanDisk has developed a business selling flash memory chips used in mobile devices. "As we go forward into the second half of 2012, we anticipate the launch of several new smartphones and tablets, along with a number of SSD-equipped Ultrabooks and other end-client PCs to drive continued increases in demand for NAND Flash," Mehrotra said during the earnings call. "As a result, we expect an improved industry supply and demand and pricing environment in the second half of 2012."

SanDisk's second-quarter earnings beat JP Morgan analyst Harlan Sur's forecasts. In research note to clients on Friday, he adjusted his price target from $43 to $47 and maintained a "neutral" rating, citing SanDisk's "strong design win traction with major OEMs" as one source of growth.

"SNDK's strategy to focus on capturing more share at the tier-1 smartphone vendors is now paying off as the company has successfully developed and qualified new mobile embedded form factors including its latest generation iNAND product (Extreme) and customized embedded modules for smartphone/tablet OEMs. We believe these new products/design wins and highmargin SSD (both client and enterprise) will drive growth in a seasonally strong 2H [second half of the year]," Sur wrote.

Jefferies analyst Sundeep Bajikar sees potential in SanDisk's retail and business customer base, reiterating his $46 price target and "buy" rating.

"As SanDisk continues to prioritize Embedded and SSD shipments over NAND for White label customers, we expect SanDisk's ASPs to stabilize, after declining by over 50% YoY [year-over-year]," Bajikar wrote in a note to clients on Friday.

SanDisk's CFO Judy Bruner projects third quarter revenue of $1.20 billion, plus or minus $50 million. "We believe that the improved supply-demand environment experienced late in Q2 [second quarter] will continue in the second half, resulting in a better pricing environment. In addition, we expect to benefit from sequential growth in our mobile embedded revenue and continuing growth in our SSD sales," she said.

Shares climbed 13.60% to $39.85 on Friday. The stock has fallen over 20% year-to-date.

--Written by Nathalie Pierrepont in New York.

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