SanDisk sees solid-state drive bonanza boosting margins

By Noel Randewich SAN FRANCISCO (Reuters) - SanDisk Corp increased its outlook for gross margins in 2014 as fast-growing sales of its high-end solid-state drives helped offset volatile prices for memory chips. Shares of SanDisk rose more than 6 percent in after-hours trade on Wednesday after the chipmaker said that, because of an improved product mix, it was increasing its 2014 gross margin target range to between 47 percent and 49 percent. Its previous target range was 45 percent to 48 percent. SanDisk's NAND memory chips are widely used in smartphones, cameras and other mobile devices to store music, pictures and other data. Increasingly the company is using its chips to build and sell its own solid-state drives directly to companies and consumers. Revenue from solid-state drives, or SSDs, increased 61 percent, to account for 28 percent of revenue in the first quarter, SanDisk said. "We anticipate that enterprise SSDs will be our fastest-growing product category in 2014," Chief Executive Sanjay Mehrotra said on a conference call with analysts. The SSD business is growing so fast that SanDisk, which is already known by consumers for its microSD cards and other retail devices, is well on its way to becoming more of a storage company than a chipmaker, said RBC analyst Doug Freedman. "And not just a storage company, but a high-quality storage company," Freedman said. "There's a real differentiation in the market that is showing up between high-quality products and ‘just ship it because somebody will use it.'" SanDisk's solid-state drive business offers higher profit margins than does sales of NAND chips to other manufacturers. It also makes the company less vulnerable to dramatic price swings that have historically plagued the memory chip industry. While they remain significantly more expensive than mechanical hard drives, solid-state drives are gaining popularity in data centres and consumer laptops because of their increased efficiency. Prices for solid-state drives have come down in the last couple of years, and Chief Financial Officer Judy Bruner in an interview the devices are now being adopted not just by cutting-edge data centres but by the IT departments of more traditional companies across the economy. "If you go back several years, it took a bit longer than some had thought, but (laptop) and enterprise SSDs are growing very quickly," Bruner said. SanDisk said first-quarter revenue was $1.51 billion (898.75 million pounds), up 13 percent from the year-ago period. Analysts on average expected $1.49 billion, according to Thomson Reuters I/B/E/S. Net income in the first quarter rose to $269 million, or $1.14 per share, from $166 million, or 68 cents per share, a year earlier. Excluding one-time items, SanDisk earned $1.44 per share, higher than the $1.26 expected by analysts. For the second quarter, SanDisk expects revenue of $1.550 billion to $1.625 billion. Analysts expect $1.583 billion. Shares of SanDisk were up 6.20 percent in extended trade after closing up 0.68 percent at $75.85 on the Nasdaq. (Reporting by Noel Randewich; Editing by Steve Orlofsky and Jonathan Oatis)