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SanDisk shares tumble on 2001 forecast

Shares in the flash-memory maker fall almost 30 percent on a warning of slumping revenue through the first half of the year because of a slowdown in the economy.

    Shares in flash-memory maker SanDisk fell as much as 34 percent Thursday, after the company warned of slumping revenue through the first half of the year because of a slowdown in the economy.

    Shares dropped to $30.63 before recovering slightly. They closed down $15.06, or 32 percent, at $31.13.

    Reporting after markets closed Wednesday, the Sunnyvale, Calif.-based company topped First Call's consensus of analyst estimates by 4 cents with fourth-quarter profits of $29.5 million, or 41 cents per diluted share.

    But the earnings numbers were overshadowed by a drop-off in fourth-quarter revenue, 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," CEO Eli Harar said in a statement.

    Company representatives said that, while revenues for 2001 would grow about 30 percent, earnings per share would be up only slightly because of a tight pricing environment. The company indicated 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.

    Sandisk was cut from "outperform" to "neutral" at Morgan Stanley Dean Witter and was downgraded from "strong buy" to "buy" at First Union Securities, but most analysts maintained a 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 in the 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 difficulties, the analyst remained positive.

    "We believe investors with a long-term time horizon should find attractive entry points for SNDK (SanDisk) 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," Danely wrote in a research note.