Sandisk (SNDK) Q1 preview

Sandisk reports tonight. I think there's a lot that can go wrong.

The US consumer is weak. The good news is Sandisk has been expanding overseas and will get some dollar euro bang as a result. International is the biggest portion of business so this could goose the top line.

Raw NAND prices are rising and retail prices are not. This squeezes their model. They can have a margin shortfall in an environment like this one.

They have an extremely bold capex plan out there that calls for billions of dollars they do not have. They would have to raise cash in order to follow through on their plan. Bulls cite the company's strong cash position as a justifying valuation metric for ownership. That cash is already spent.

Samsung has become very dodgy with them about royalty payments and seems to be trying to reduce the amount they pay Sandisk. This is kind of a wildcard in the story but a potentially catastrophic downside if Sandisk isn't able to keep the royalties coming. Royalties are nifty because they have absolutely no cost associated with them -- they're pure EPS. At their analyst meeting, Sandisk suggested they're going to wind up negotiating royalties with Samsung lower. When Samsung pulls back, EPS takes a nosedive.

I'm short the stock but I'm also long 5 times as much Micron.