Citigroup Says SanDisk's Numbers Will Improve

In a report published Wednesday, Citigroup analyst Joe Yoo commented that SanDisk Corporation (NASDAQ: SNDK) faces several "troubling" near-term challenges, but this isn't necessarily a bad thing for investors as much of the bad news is already reflected in lowered earning per share estimates.

According to Yoo, the near-term challenges include 1) losing the Apple Inc. (NASDAQ: AAPL) SSD business, 2) a potential loss of part of its iPhone business, 3) execution challenges at Fusion-IO, 4) recent price concessions in the high-margin retail segment, and 5) persistent yield issues on the 15nm ramp.

However, the good news is that SanDisk will see an improvement in its 15nm yield that could result in better margins on existing products, but also an opportunity to regain share within customers. In addition, a weaker Japanese yen could provide margin support in calendar 2015 while the yield issues are being resolved.

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"Management has blamed the shortfall on a laundry list of issues leading investors to serious questions of whether this is just an unfortunate concurrence of temporary challenges, or something more structural," Yoo wrote. "We tend to side with the former."

Bottom line, shares of SanDisk are expected to be range-bound in the near-term given a lack of visibility. However, the analyst noted that investor sentiment and earnings revisions should improve once the 15nm ramp is back on track.

Shares remain Buy rated with an unchanged $78 price target.