SanDisk: No Flash in the Pan
By Cindy Christ

One of the top criteria used to pick winning stocks by professional money managers is rising earnings estimates, according to a study by Merrill Lynch.

On Wednesday, Robertson Stephens raised its revenue and profit projections for SanDisk Corp. (SNDK). Though its shares rose on the news, investors didn't need the call to know that the maker of flash memory products is poised to lead the market for years to come.

Over the last 52 weeks, SanDisk shares have risen fourfold in step with accelerating demand for wireless communications and new digital electronics products.

"We believe we are just at the cusp of SanDisk's exploding growth as a variety of digital consumer devices start to use flash memory for data storage including digital cameras, MP3 players, as well as set-top boxes, Internet appliances, and Personal Video Recorders," said Robertson Stephens managing director Dan Niles and senior semiconductor analyst Arnab Chanda in a research note.

Niles and Chanda reiterated their "strong buy" rating on SanDisk shares, saying the company is on track to "strongly exceed" first-quarter 2000 estimates, and set a six-month price target of $200.

They also raised their first-quarter revenue forecasts to $104.9 million from $92.7 million, and increased first-quarter earnings estimates to 37 cents from 33 cents per share.

In January, Niles and Chanda lifted their full-year 2000 revenue estimates for SanDisk to $470 million from $411.9 million and per-share earnings to $1.50 from $1.15.

Revenues and per-share earnings for 2001 were set at $750 million and $2.00.

Shares in SanDisk, which split 2-for-1 Feb. 22, traded higher intraday on the news, but finished down $0.94, or 0.66 percent, at $142.14.

Based in Sunnyvale, Calif., SanDisk is the world's largest supplier of flash memory cards used in handheld devices, such as personal organizers, digital cameras and MP3 players, which allow users to listen to music digitally transferred from the Internet.

Flash memory is essential for mobile devices because it can retain stored data, images or audio without power.

Merrill Lynch, which rates SanDisk shares a "near-term accumulate" and "long-term buy," issued a research note last week identifying the company among seven technology firms set to cash in on the proliferation of electronic appliances.

Last year, SanDisk sales and profits nearly doubled, with total revenues rising 82 percent, product revenues up 99 percent and earnings per share up 100 percent.

Total revenues for 1999 reached $247 million, up from $135.8 million last year. Net income was $26.6 million, or 86 cents a share, versus 43 cents in 1998.

SanDisk also showed a strong balance sheet, with cash and investments of $460 million and no debt, and noted order backlog was at an all-time high.

The company said a key revenue driver last year was its CompactFlash memory used as reusable film in digital cameras, which were hot sellers over the holiday season.

In 1999 SanDisk shipped more than three million CompactFlash memory cards, an increase of more than 140 percent over 1998.

More than 220 products now use CompactFlash memory cards, including palmtop computers, photo printers, Internet music players, medical monitors, TV set-top boxes, audio recorders and auto PCs.

"We believe that SanDisk's target markets are entering a strong growth phase, fueled by the accelerating convergence of consumer electronics, Internet and wireless. These new and exciting markets represent immense opportunities for sustainable growth for SanDisk in the years ahead," said Dr. Eli Harari, SanDisk president and CEO, in a news release.

SanDisk recently signed an agreement with consumer electronics giant Circuit City Stores, which will sell SanDisk-branded flash memory cards and card readers in its 600 plus retail outlets.

With the market for handheld devices projected to expand from $420 million last year to $1.1 billion by 2003, all signs are flashing that SanDisk is set for a memorable rise.