SanDisk Driven by Mobile Phones

We expect SanDisk's mobile business to remain the biggest growth area for SanDisk due to growing mobile phone demand in emerging markets and adoption of smartphones.
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, a leading manufacturer of flash memory cards along with


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, is increasingly benefiting from the growing global mobile phone market, particularly the smartphone market.

Mobile phone memory was an insignificant portion of SanDisk's business five years ago, but has now grown rapidly to contribute 50% of SanDisk's revenues in the first quarter of 2010. We estimate Mobile Phone Flash Cards division to constitute

40% of the $44 Trefis price estimate for SanDisk's stock.

SanDisk, with its MicroSD card series, dominates the mobile memory market which has bifurcated into low capacity cards (1 GB & 2 GB) for low-end mobile phones and high capacity cards (16 BG & 32 GB) for high-end smartphones.

We expect SanDisk's mobile business to remain the biggest growth area for SanDisk as a result of growing mobile phone demand in emerging markets and growing adoption of smartphones.

1. Strong Demand for Low Capacity Cards in Emerging Markets

SanDisk saw a surge in demand for its low capacity 1 GB and 2 GB MicroSD cards in the first quarter of 2010 from emerging markets such as China, India, South America and Africa. This was a result of low cost mobile manufacturers in the emerging markets rapidly upgrading their products by introducing memory slots rather than purely relying on small capacity embedded flash memory used earlier.

We believe the growing demand in emerging markets for mobile phones with memory slots will positively benefit the

flash card penetration in mobile phones

and, in turn, boost sales for SanDisk's low capacity MicroSD cards. We estimate that mobile phones sold with memory slots will increase to

50% in 2010, up from 41% in 2009.

2. Increasing Smartphone Adoption Driving Sales of High Capacity Flash Cards

The growing demand for smartphones has created three avenues for SanDisk to increase its memory card sales:

(i) Partnerships with smartphone vendors such as Apple, RIM, Nokia

SanDisk partners with smartphone makers like


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that provide high capacity embedded flash memory in their handsets to enhance the end user multimedia experience. In addition, they sell bundled memory cards with their smartphones in order to store a large amount of media content.

Partnership with smartphone manufacturers will be beneficial for SanDisk, with the

global smartphone market share

in total mobile phones sold is expected to double from 2009 to 2013.

(ii) Partnerships with mobile network operators such as AT&T, Verizon, Sprint

Network carriers like


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have custom applications and services for their mobile users. SanDisk's customizable service delivery card (SDC) provides operators a way to deliver some of the latest applications without burdening the network with higher data traffic.

The popularity of SanDisk's SDC can be seen from the fact that 9 out of the top 10 mobile network operators use the card, and we expect this trend to continue in the future.

(iii) Aftermarket retail sales opportunity

In addition to the bundled memory cards bought from smartphone makers, consumers also buy extra memory cards through retail channels to meet additional storage requirement over time. This creates another sales opportunity for SanDisk related to mobile phones.

You can see

our complete analysis for SanDisk's stock here.


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