Why Is SanDisk The Top Pick Of Pacific Crest Analysts?

In a report published Friday, Pacific Crest analyst Monika Garg maintained an Overweight rating on SanDisk Corporation SNDK, while naming the company as Pacific Crest’s Top Pick in the 3D NAND space, following the 10th Annual Flash Summit, where NAND vendors detailed their 3D NAND plans while showcasing their enterprise SSD offerings.

The Flash Summit

“SanDisk showcased its 3D NAND TLC USB drive and 3D NAND MLC client SSD drive at the event. We believe this shows that SanDisk is progressing well on its 3D NAND transition,” Garg explained.

Given that planar NAND has achieved its scaling limits, the analyst pointed out that NAND vendors are now transitioning to 3D NAND to gain the benefit of lower costs. Planar NAND capex is expected to decline going foeward, with 3D NAND capex rising.

The analyst expects 15-20 percent of NAND capacity to be on 3D NAND by the end of 2016, most of which is likely to be from the conversion of planar NAND to 3D NAND.

“We expect all of the NAND vendors to increase their mix of TLC, which should benefit their margins and provide bit growth. Since planar NAND has reached scaling and 3D NAND is a gradual transition, the NAND industry is looking at TLC to reduce cost/bit and also get bit growth,” Garg mentioned.

SanDisk produces over 50 percent of NAND bits on TLC at present. With the increasing use of TLC by Apple, Inc. AAPL, SanDisk’s TLC mix is expected to grow from the current 50 percent to as high as 70 percent, which should benefit the company’s margins.

At the summit, NAND vendors stated that they were increasing their enterprise SSD offering. “We believe enterprise SSD offers NAND vendors the opportunity to move up the value chain. We expect NAND vendors to increase their share in the enterprise SSD market,” the Pacific Crest report stated.

Why Top Pick

SanDisk provided two updates at the conference. Firstly, the company said that it was making progress in “making progress in qualifying 15nm TLC NAND in custom embedded applications and expects revenue from this in Q3.”

Secondly, SanDisk stated that “it is progressing well in qualifying the component failure issue for client SSD. SanDisk expects client SSD revenue to grow quarter on quarter in Q3.”

“SanDisk showcased its 3D NAND TLC USB drive and 3D NAND MLC client SSD drive. We believe this shows that SanDisk is progressing well on its 3D NAND transition,” the Pacific Crest report added.