There's Nothing Flashy About SanDisk Numbers

It was revealed on Wednesday that flash-memory company SanDisk (NASDAQ: SNDK) has warned that weak demand from cell phone makers and a glut in supply leading to lower prices has severely hurt its revenue and margins. SNDK shares are down 7% in after-market trading.According to Reuters, the manufacturer of the NAND chip which is used to store memory in devices such as smartphones and tablets has seen demand drop off, and some of the company's big customers have been scaling back orders.RBC Capital Markets analyst Doug Freedman told Reuters that, "Anybody who is not a Samsung or an Apple is burning through some (mobile) handset inventory. Until we get the PC market, tablet market and handset market back buying, we'll see an oversupply situation."It is not only SanDisk that is suffering. At the end of March, Micron Technology (NYSE: MU) posted a loss due to persistently low prices for memory chips.SNDK is now expecting 1Q revenue of roughly $1.2 billion, which is lower than the $1.30 billion to $1.35 billion range that it had forecast back in January."SanDisk is exposed broadly to most mobile handset makers, and they even ship to Samsung but that is not barely enough to offset the shortages coming out of most mobile makers," Freedman said.On Wednesday, Goldman Sachs published a research report stating that SanDisk negatively preannounced 1Q12 results after the market close on April 3. The company lowered sales guidance to about $1.2 bn (down 24% qoq), compared to $1.30-1.35 bn (down 14% to 18% qoq) previously."Total gross margin is now expected to come in below the low end of the previously guided range of 39%-42%. Although the company cited both weaker pricing and demand as reasons for the miss, it did not quantify the impact of these factors."Jefferies said that it believes SanDisk's Q1 miss is consistent with weaker NAND market pricing, and highlights risk of disappointment in SSD for PC/Ultrabook. It continues to believe upside to NAND demand over the next 6-to-12 months is most likely to be driven by growth in Enterprise SSD primarily for high-performance caching applications over the PCIe interface."We think SSD penetration in Ultrabook could disappoint, due to a combination of slower than expected Ultrabook ramps, and faster declines in HDD prices relative to NAND, making NAND less attractive for bulk storage. However, we would not be surprized if hybrid HDD+SDD drives, high-capacity memory cards, or low-profile USB drives (~4-20GB NAND capacity) saw increasing adoption in Notebook due to their ability to improve performance at a lower price point (vs. pure SSD), and while preserving higher storage capacity through a HDD."