SanDisk Shares Plunge; Analysts Cite Uncertain Sales Environment

Wall Street lowered expectations for SanDisk after the computer memory maker said falling prices for flash memory will weigh on sales in the first quarter.

The Milpitas, Calif.-based company said late Tuesday it expects lower retail sales and a decline in margins due to plunging market prices for flash memory. As a result, SanDisk said it now expects first-quarter revenue in a range of $785 to $890 million, which tracks below the current Thomson Financial forecast of $927 million.

SanDisk shares declined sharply on heavy trading volume Wednesday.

"SanDisk delivered a solid quarter, but management's outlook was as shaky as we can remember," Sidney Ho, an analyst with Merrill Lynch, said in a client note Tuesday. "Industry oversupply in the first half of the year has limited any visibility into pricing for the year."

The Merrill Lynch analyst slashed the 2007 earning estimate on SanDisk to $1.80 from $2.50 a share.

Deutsche Bank Securities analyst Pranay Laharia lowered his target price on the stock to $38 from $44, only a week after cutting the target down from $48.

"Highlighting the currently treacherous NAND flash environment, SanDisk declined to give any guidance on full-year average selling prices, gross margins, or license and royalty streams," Laharia noted. "Given this lack of visibility it is hard to see significant buyers stepping up to the plate."

However, Bear Stearns' Gurinder Kalra offered a contrarian viewpoint, saying he expects a rebound in flash market prices later this year. Should this occur, SanDisk's bottom line should "improve significantly" in the second half of the year as the company reduces costs.

"Expectations remain muted for 2007 as a whole and we believe the anticipation of the company’s earnings expansion in the second-half of 2007 will drive the stock higher," Kalra said in a research report Wednesday.

"We recommend accumulating the shares especially on any weakness. Despite weak near-term pricing outlook, we believe SanDisk offers compelling value at these levels."