ECONOMIC ANALYSIS

Economic Industry Overview

William C. Dunkelberg Owl Fund

November 10, 2014

Economic Analysts:

SanDisk Corp.

Robert Kost
rkost@theowlfund.com
Darmesh Patel
dpatel@theowlfund.com

Vicky Magginas
vmagginas@theowlfund.com
GhishlainGuiebo
gguiebo@theowlfund.com

Exchange: NasdaqGS | Ticker: SNDK | Sector: Technology

Company Overview
SanDisk Corporation designs, develops, manufactures, and markets data storage products that are used in
various consumer electronics products. The company provides removable cards, which are used in various
consumer electronics devices, such as mobile phones, tablets, eReaders, digital cameras, camcorders, gaming
devices, and personal computers. It also offers embedded flash products that are used in mobile phones,
tablets, computing platforms, imaging devices, and other products under the iNAND brand name; and solid
state drives (SSDs) for client computing platforms and enterprise data centers, as well as enterprise software
solutions to enhance the performance of SSDs. SanDisk Corporation offers its products directly and
through distributors to original equipment manufacturers, consumer electronics stores, office superstores,
photo retailers, mobile phone stores, mass merchants, catalog and mail order companies, e-commerce
retailers, drug stores, supermarkets, convenience stores, and kiosks in the United States, the Asia Pacific,
Europe, the Middle East, Africa, and internationally.
Memory Market 2015 Outlook
Supply-demand stability in DRAM and NAND memory chips will prevail through 2015, according to IDC.
Stable prices are helping DRAM sales amid bit growth of 26%. NAND memory bit growth for 2014 is
forecast at 38% by IDC and is driving industry sales to $28 billion. DRAM sales may grow 28% to $45
billion in 2014, as prices rise 2% and bits increase 26%. In 2015, sales may decline 3% to $43 billion as
prices fall 21%, with bit growth of 24%. NAND demand comes from solid state drives and smartphones,
where shipments and NAND content are growing especially due to the demand for Apple products. Some
supply loss at Hynix could partially offset Samsungs new DRAM production. If Samsung pivots toward
memory chip sales and expansion amid its weakening handset franchise, it will be bad news for the memory
industry if timing and pace of supply are not controlled.
Enterprise DRAM Growth Drives Shipments and Pricing
Enterprise is increasingly driving memory consumption and pricing. The 2014 server DRAM market is
about $7 billion and may grow at a 42% compound annual rate through 2018, according to Micron. Bulls
say enterprise customers are less price sensitive and buy more expensive, high-performance DRAM per
server than consumers would for their laptops. Growing use of cloud and in-memory databases in large
companies and public clouds from Google, Amazon and Facebook expand this market.

SanDisk Corporation: SNDK

Fall 2014

DRAM Growth in Servers & Phones Enhances Memory Market

Continued rise in DRAM content of devices in a supply constrained environment may continue the Bull Case
for this segment of the memory market. Mobile phones, PCs, and servers are the top 3 DRAM consumers.
Most market segments of these devices are having DRAM growth per device, though unit device growth has
been mixed. Servers are getting both DRAM density growth and device unit growth, while PCs have had
some near term improvement after multiple years of decline.

Weakness in PCs, Servers, Phones Will Hurt Memory

A significant decrease in the PC and server shipments and smartphones would hurt DRAM and NAND
memory content and shipment uptake. Computing accounted for 46% of 2013 DRAM sales, even with
relative weakness, and its 2014 DRAM exposure may be higher because of recent PC strength. Mobile
phones are another growing area, accounting for 31% of DRAM sales. NAND has similar traits, with
computing and wireless communication making up 83% of sales.

The William C. Dunkelberg Owl Fund

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SanDisk Corporation: SNDK

Fall 2014

Semiconductor Index Valuation (Price to Sales)

Memory maker price to sales multiples have been compressing since July, bringing SanDisk back in line with
the broader SOX index, while Micron and Hynix continue to lag. Improving demand for NAND flash
memory from embedded applications such as smartphones and tablets and wider solid state drive adoption
likely led to SanDisks premium relative to peers.

DRAM Driven By Supply, NAND Memory Affected By Demand

In a more bear case (which we do not foresee), a pricing decline triggered by oversupply may substantially
hurt memory makers, especially in DRAM. The segment has seen notable supply demand balance, amid
vendor consolidation and controlled output. Samsungs new factory Fab 17 may alter this landscape in
2015. NANDs supply is higher and it has maintained its year on year price declines, yet demand weakness
from solid state drives, tablets or smartphones may hurt prices.

The William C. Dunkelberg Owl Fund

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SanDisk Corporation: SNDK

Fall 2014

DISCLAIMER
This report is prepared strictly for educational purposes and should not be used as an actual investment guide.
The forward looking statements contained within are simply the authors opinions.
TUIA STATEMENT
Established in honor of Professor William C. Dunkelberg, former Dean of the Fox School of Business, for his
tireless dedication to educating students in real-world principles of economics and business, the William C.
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Provide students with hands-on investment management experience

Enable students to work in a team-based setting in consultation with investment professionals.
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Earnings from the fund will be reinvested net of fund expenses, which are primarily trading and auditing costs
and partial scholarships for student participants.

The William C. Dunkelberg Owl Fund

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