SanDisk falters on outlook
Shares in the flash memory chip maker dropped $13.50 to $32.69 at the opening bell.
Reporting after market close yesterday, the Sunnyvale, Calif.- based company SanDisk topped the First Call analysts' earnings estimate by 4 cents, with profits of $29.5 million, or 41 cents per diluted share, for the fourth quarter.
But the earnings numbers were overshadowed by a drop-off in fourth quarter revenues, which totaled $177.7 million, below internal projections and 12 percent off the Street's projections. As a result of a slowing economy, the company's "product demand slowed drastically, resulting in reduced backlog and low near-term order visibility," said CEO Eli Harar in a statement.
Company officials said that, while revenues for 2001 would grow about 30 percent, earnings per share would be up only slightly due to a tight pricing environment. The company indicated that it would slow production and reduce inventories in the first half of 2001, in anticipation of a rebound in demand in the second half of the year.
Although Sandisk was cut from "outperform" to "neutral" at Morgan Stanley Dean Witter and was downgraded from "strong buy" to "buy" at First Union Securities, most analysts maintained positive longer term outlook on the stock.
At Morgan Stanley, analyst Mark L. Edelstone cut the stock's rating and lowered 2001 earnings estimates.
The analyst noted that, while near-term uncertainties caused the reduction in rating, the company remains well positioned in the long term, particularly in light of its new memory technology venture with Toshiba.
Analyst Joe Moore at Goldman Sachs cut estimates for the first quarter and fiscal 2001 but remained positive on longer term outlook, maintaining a rating of "market outperformer".
At Merrill Lynch, Christopher Danely also lowered fiscal 2001 targets while keeping a long-term "buy" rating on the company's shares. Apart from the near-term difficulities, the analyst remained positive.
"We believe investors with a long term time horizon should find attractive entry points for SNDK in the coming months, as we still believe in the long-term growth of data-storage flash and the inventory correction should end by the summer," the Danely wrote in a research note.