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JAT Capital Eliminates Exposure to SanDisk Corporation

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JAT Capital and SanDisk Corporation

JAT Capital sold its position in SanDisk Corporation (SNDK) during the fourth quarter of 2014. The position was worth $75 million and had represented 1.2% of the fund’s third-quarter portfolio.

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Company profile

With annual revenues of over $6.6 billion, SanDisk is a leading player in the flash storage solutions market. The company designs, develops, and manufactures a range of NAND flash memory solutions:

  • solid-state drives (or SSDs)
  • embedded flash products
  • removable cards
  • universal serial bus (or USB) drives
  • digital media players
  • wireless media drives
  • wafer and components

SNDK’s products find applications in many everyday devices:

  • mobile phones
  • tablets
  • computing platforms
  • automobiles
  • PCs
  • gaming consoles

According to Statista, SNDK is the third-largest NAND flash memory manufacturer. SNDK has an 18% market share, while Toshiba (TOSBF) and Samsung (SSNLF) hold 22% and 28% of market share, respectively. Micron Technologies (MU), SK Hynix (HXSCL), and Intel (INTC), had market shares of 14%, 11%, and 7%, respectively.

SanDisk is a component of the iShares PHLX Semiconductor ETF (SOXX). The company makes up 3.16% of the ETF.

Purchase of Fusion-io

In July 2014, SNDK completed the acquisition of Fusion-io, which provides flash memory products to businesses in over 80 countries. The all-cash transaction had a total value of $1.1 billion, net of cash assumed. Sanjay Mehrotra, president and CEO of SanDisk, stated that “The tremendous engineering and go-to-market talent of the Fusion-io team will accelerate our efforts to enable the flash-transformed data center.”

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Spin-out of ioControl Solutions business

SNDK had acquired the ioControl Solutions business as part of the Fusion-io deal in 2014. Th ioControl Solutions business is a developer of hybrid storage devices. SNDK completed the spin-out of the business in January 2015.

Management has stated that hybrid storage solutions are not a core focus for the company. To suit the interests of its shareholders, SNDK spun ioControl Solutions out as an independent private entity known as NexGen Storage.

4Q14 performance

SNDK’s fourth-quarter revenues remained relatively flat at $1.7 billion compared to the prior-year quarter.

Operating margin decreased by 10 percentage points YoY to 19%. This was mainly due to higher amortization and restructuring expenses related to the Fusion-io acquisition. Costs related to the spin-out of ioControl Solutions also contributed to the decrease in operating margin.

Net earnings on a per-share basis slid to $0.86 in 4Q14 from $1.45 in 4Q13.

In the next article, we will discuss JAT Capital’s position change in Hertz Global (HTZ).

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