SanDisk soars on cell phone potential

Sunnyvale, Calif.-based SanDisk reported Wednesday that total revenue was up 88 percent for its first quarter, ended March 31, to $174.5 million from $92.6 million, compared with the same period a year ago. Earnings came in at $24.9 million, or 33 cents per share, versus a loss of $3.7 million, or 5 cents a share, a year ago.

SanDisk shares were up 23.5 percent, gaining $4.19 to close at $21.99. SanDisk rival Lexar Media saw shares jump 27 percent at $4.73. The company is scheduled to report first-quarter results after market close.

Analysts attributed the somewhat surprising earnings to a variety of factors, including a favorable tax rate.

"While it appears that SanDisk posted a huge positive surprise in the first quarter, it is important to note that 11 cents of the surprise was driven by a lower tax rate...Without these items, first-quarter earnings per share would have been about 24 cents," Mark L. Edelstone, an equity research analyst with investment bank Morgan Stanley, wrote in a report Thursday.

First-quarter results often decline because of the slower seasonal sales that follow the traditionally strong fourth quarter, but original equipment manufacturer sales reached the highest levels in the past eight quarters, accounting for a significant increase overall.

"During the quarter we introduced a number of important new products, including the miniSD card, which we believe will become a significant revenue generator for us in new cell phones with built-in digital cameras that are expected to be introduced this year," SanDisk CEO Eli Harari said in a statement.

The company added that average selling prices per megabyte of memory declined 24 percent, and it expects another 10 percent to 15 percent decline in the second quarter. Additionally, 62 percent of product revenue came from the retail market, which can be fickle and unpredictable at times.

Still, SanDisk was able to move the average card capacity from 90MB to 120MB through strategic pricing of higher-capacity cards. The projected high growth rates of removable flash memory cards used in devices with high volume shipment numbers, such as digital cameras and cell phones, give SanDisk and the other removable flash memory card makers a reason to be optimistic.

"Digital cameras have been a high-volume segment for us, but we are hearing that shipments of cell phones with digital cameras may exceed those of (standalone) digital cameras," said Nelson Chan, a senior vice president of the retail business unit at SanDisk.

Earlier this month, SanDisk announced that it will supply miniSD cards for select NTT DoCoMo i-mode 505 series cell phones.