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SanDisk warns of revenue, earnings shortfall

    Shares of SanDisk fell more than 13 percent after the company said its first-quarter numbers would be "significantly lower" than expected, due to a slumping economy and customer inventory corrections.

    The maker of flash memory storage chips saw its stock fall $2.38 to $18.50 in pre-session trading on the Island ECN electronic trading network. SanDisk's (Nasdaq: SNDK) products include removable and embedded memory cards for digital cameras, portable digital music players, cellular telephones, and other electronics.

    The Sunnyvale, Calif.-based company said Thursday that it now expects that first-quarter 2001 product revenues will drop about 45 percent sequentially from the $155 million seen in the fourth quarter of 2000. Prior expectations were for a 15 percent to 20 percent drop.

    First-quarter earnings are now projected to be around breakeven, the company said. First Call analysts' consensus calls for earnings of 20 cents a share for the period.

    The company's revenue woes are not that surprising. In the prior quarter, SanDisk missed the Street's revenue estimates by 12 percent and warned of slumping revenues through the first half of the year due to a slowdown in the economy.

    According to company officials, demand from major original equipment manufactures (OEMs) has been substantially below forecast as these customers continue to work down their existing inventories. In addition, retail channel orders are running at much lower levels than those of the fourth quarter of fiscal 2000, the company said.

    The company also noted that gross margins are being hurt by lower volumes and a marked drop in average selling prices due to competition.

    "We are tightly controlling expenses and have implemented a reduction in our regular and contract employee work force and reduced discretionary spending," said CEO Dr. Eli Harari, in the release.

    For fiscal year 2001, First Call analysts' expectations are for earnings of $1 a share on revenue of $791 million.