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SanDisk warns of revenue, earnings shortfall

Shares sag after the company says its first-quarter numbers will be significantly lower than expected--a result of the slumping economy and inventory corrections.

Shares of SanDisk sagged after the company said its first-quarter numbers will 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 50 cents to $20.38--a drop of more than 2 percent--at the start of trading Thurdsday. The stock had fallen $2.38, or about 13 percent, to $18.50 in presession trading on the Island ECN electronic trading network.

The Sunnyvale, Calif.-based company said Thursday that it now expects first-quarter 2001 product revenues to 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 the break-even point, 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 the company, demand from major OEMs (original equipment manufacturers) 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.

SanDisk's products include removable and embedded memory cards for digital cameras, portable digital music players, cellular telephones and other electronics.

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

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

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