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Why SanDisk Returned to Growth after a Year of Revenue Declines

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SanDisk beat analysts’ revenue estimates by a large margin

In the previous part of this series, we saw that SanDisk (SNDK) posted revenue growth in fiscal 1Q16 despite declines in PC (personal computer) sales and a slowdown in smartphone sales. This is probably the last financial for SanDisk before it completes its merger with Western Digital (WDC) in fiscal 2Q16. Let’s look now at SanDisk’s fundamentals.

In fiscal 1Q16, the company’s revenue rose 3% YoY (year-over-year) to $1.4 billion, topping analysts’ estimate of $1.2 billion and its own guidance of $1.3 billion. This was the first growth after four consecutive quarters of decline. The growth is despite the fact that the company’s fiscal 1Q15 earnings included revenue from a major customer that it lost in fiscal 2Q15. Analysts believe this customer was Apple (AAPL), which shifted to Samsung (SSNLF) for its SSD requirements.

Four of SanDisk’s five segments reported YoY revenue growth, with strong growth reported in the enterprise and client SSD (solid state drive) segments.

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EPS

Sandisk’s non-GAAP (generally accepted accounting principle) EPS (earnings per share) rose 32% YoY to $0.82, beating analysts’ estimate of $0.55. Such a vast difference in the estimated and actual figures indicates that the earnings came as a surprise to investors and analysts.

While the YoY figures show a strong growth in earnings, the opposite is true when we look at a QoQ (quarter-over-quarter) comparison. On a QoQ basis, revenue fell 11% and EPS fell 35%. A similar trend was noted in Intel’s (INTC) earnings, where YoY figures showed growth but QoQ figures showed declines.

Profitability

On a non-GAAP basis, SanDisk’s gross margin fell from 43% in fiscal 1Q15 to 42% in fiscal 1Q16. This is because the ASP (average selling price) fell 40% YoY while costs fell 39% YoY. Operating margin rose from 15% in fiscal 1Q15 to 17% in fiscal 1Q16, as the company reduced its operating expenses by 8.8% YoY.

While SanDisk posted growth, Western Digital posted declines. Western Digital’s earnings even missed analysts’ estimates. Let’s look next at Western Digital’s performance in fiscal 3Q16, which ended April 1, 2016.

The iShares Russell 1000 (IWB) has exposure to large-cap US stocks across various industries, including technology. It has 0.08% exposure in SNDK, 2.6% in AAPL, and 0.70% in INTC.

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