SanDisk falls as smartphone business goes elsewhere
The company significantly lowered guidance, likely as a result of insufficient exposure to Apple and Samsung.
SanDisk now expects to report first-quarter revenue of $1.2 billion versus prior guidance of $1.3 to $1.35 billion, and consensus of $1.3 billion. Additionally, the company lowered its gross margin guidance from an earlier range of 39% to 42%.
And keep in mind, that guidance SanDisk issued back on Jan. 25 in conjunction with its fourth-quarter results was disappointing itself -- so SanDisk is now on a bit of a losing streak.
Back then, SanDisk noted that some OEM customers weren't ordering as much as expected. Yesterday it echoed that revelation in its press release by attributing the current weakness to "weaker than expected price and demand."
Translation: We don't do enough business with Samsung and Apple.
Back in January, using data from the market-research firm Strategy Analytics, we concluded that Samsung and Apple accounted for a whopping 86% of smartphone industry growth in the fourth quarter of 2011. (See: Samsung and Apple Now Account for 86% of Smartphone Industry Growth.)
Research In Motion (RIMM), Nokia (NOK), Motorola (MMI), and HTC have all seen their sales fall off significantly, and in some cases, those sales are actually declining.
Samsung and Apple are the only guys still standing, as you can see in this chart:
So here's the problem: What does SanDisk make? Flash. But so does Samsung!
And not only does Samsung supply flash for its own phones and tablets, it supplies flash to Apple as well.
Now, SanDisk was listed as a supplier in Apple's 2011 supplier list. And SanDisk did use pictures of Apple's iPad and iPhone on a slide in its Feb. 16, 2012 analyst day presentation:
However, there is no indication that this a significant relationship. In fact, the only Apple product teardown I can recall that revealed SanDisk memory was last year's iPod Nano.
For all we know, Apple could be using SanDisk flash instead of Samsung's or Toshiba's (note: Toshiba is also a key Apple supplier) for some of its production. But if Apple is making sizable purchases of SanDisk flash, shouldn't SanDisk be doing better?
Therefore, it is very reasonable to conclude that SanDisk has insufficient business with the two most important mobile gadget companies in the world.
So what do we take away from this?
From an industry perspective, I can't emphasize enough that there is no Google (GOOG) Android smartphone bull market. There is, however, a bull market in Samsung phones powered by Android. (See: The Samsung Bull Market Just Replaced the Android Bull Market.)
So if you own any semiconductor stocks, make sure they're doing big business with Samsung and/or Apple. At this point, Qualcomm (QCOM) seems like the safest bet as it has significant design wins with both companies, and should benefit from the smartphone/tablet markets' evolution from 3G to 4G.
Author Michael Comeau owns a position in Apple.
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The company has made at least 4 acquisitions in the space, and few people have paid any attention.
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