SanDisk Reports Weaker Revenue Outlook -- 3rd Update

By Don Clark And Michael Calia 

SanDisk Corp. warned of lower-than-expected results for its fourth quarter, spurring fears that a smartphone-driven surge in the memory chip market could be slowing.

The Silicon Valley company's shares plunged 14% on the news. Shares of Micron Technology Inc., another memory chip specialist, slid nearly 6%.

SanDisk attributed weaker revenue and gross profit margin on sales of chips known as NAND flash memory for mobile devices as well as data storage cards and other products sold at retail. It didn't identify a particular customer, but some analysts suspected slower smartphone sales by Samsung Electronics Co. could be a factor.

A Samsung spokesman declined to comment. A SanDisk spokesman declined to provide additional comment until the company reports fourth-quarter results on Jan. 21.

Sanjay Mehrotra, SanDisk's chief executive, sounded upbeat in an interview during last week's Consumer Electronics Show, particularly about the company's effort to become a bigger player in equipment based on flash memory chips that is being used in corporate data centers. SanDisk last summer bought Fusion-io Inc., which specializes in products that add flash-based data storage to servers, for $1.1 billion.

"We are in the very early innings of the flash transformation of the data center," Mr. Mehrotra said.

Memory chips have long been associated with storing data in personal computers, particularly a variety known as DRAM, for dynamic random-access memory. The business was historically known for sharp boom and bust periods, however, as companies boost production and cause prices to fall.

Demand from smartphones and other products has caused unusual price stability lately, buoying the share prices of companies like SanDisk and Micron. Jim Handy, who tracks the market for the research firm Objective Analysis, said chip prices have been relatively stable since July 2012.

"I've been predicting that prices would remain stable until 2017," Mr. Handy said. "If I'm right, that would be the longest period of stability in the history of the industry."

But there may be short-term bumps along the way. Douglas Freedman, an analyst with RBC Capital Markets, said any slowdown in chip purchases by Samsung in the fourth quarter could quickly turn around as the company gradually begins making more phones.

Another issue is the long-term health of add-on memory cards and other devices sold at retail, as some customers are relying more on built-in storage that comes with new devices.

"I think SanDisk was expecting the retail market to be a little bit more robust," Mr. Freedman said.

Mr. Freedman added that he was surprised SanDisk didn't get a bigger boost from sales to Apple Inc., which is believed to have experienced a big jump in sales of new iPhones in the quarter ended in December.

SanDisk on Monday estimated that its total revenue for the period ended Dec. 28 will be $1.73 billion, about flat with the year-earlier period and below its previously anticipated range of $1.8 billion to $1.85 billion.

Write to Don Clark at [e-mail] and Michael Calia at [e-mail]

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