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SanDisk Corporation : 2nd UPDATE : SanDisk Profit Falls 42% Absent Tax Item; Core Net Up

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01/26/2012 | 12:57am CEST

--SanDisk reports fourth-quarter adjusted earnings that top analysts' estimates

--Revenue comes in at the top end of the memory chip maker's projections

--SanDisk provides weak 1Q revenue guidance

--Company says customers that use its flash memory in mobile devices are seeing lower demand for their products

(Updates throughout with guidance and comments from conference call.)

   By Shara Tibken 

A day after electronics giant Apple Inc. (AAPL) reported record iPhone sales, SanDisk Corp. (SNDK) provided soft guidance that suggests the rest of the mobile industry isn't doing as well.

SanDisk--which makes flash memory for smartphones, tablets and other devices--forecast first-quarter revenue of $1.3 billion to $1.35 billion, below the $1.46 billion expected by analysts, according to Thomson Reuters. It also projected full-year revenue of $6.2 billion to $6.6 billion, compared with the $6.66 billion estimated by the Street.

"In the fourth quarter, certain of our mobile [original-equipment manufacturer] customers lowered their NAND [flash memory] forecast to us due to lower demand for their products," Chief Executive Sanjay Mehrotra said during a conference call. "We believe this will impact our revenue opportunity in the first half of 2012."

But he said that the diversity of SanDisk's customer base, growing momentum in its solid-state drive business and other demand drivers will allow the company to return to "healthy" revenue growth in the second half of the year.

Shares, which initially were off about 4% after hours, accelerated their decline following the outlook. They recently dropped 8.6% to $47.80 in late trading. The stock had climbed 7.8% over the past year through Wednesday's close.

SanDisk, once mainly known for small storage cards and thumb drives sold in retail stores, sells flash memory chips for increasingly popular devices like smartphones, tablets and digital music players. The company also recently made an acquisition to give it a bigger foothold in solid-state drives, which are being used in greater numbers in data centers and personal computers.

The comments from SanDisk on Wednesday contrast with bullish results and guidance from electronics giant Apple the day before. The electronics giant sold a record 37 million iPhones in the most recent quarter, but other handset makers--including Sony Ericsson and Research in Motion Ltd. (RIMM)--have been struggling.

Sony Ericsson, a joint venture between Sony Corp. (SNE) and Telefon AB L.M. Ericsson (ERIC), surprised the market earlier Wednesday with a EUR207 million loss due to increased competition and headwinds in Europe. The company shipped 9 million handsets during the quarter, down 20% from the previous year.

To deal with softer demand and declining pricing, SanDisk will be halting capacity expansion at its new chip factory from the end of January until at least July, Chief Financial Officer Judy Bruner said. The company originally planned to restart production in May, she added.

Bruner noted that along with the demand weakness, the first-quarter guidance reflects the seasonality "typical of a consumer business," something she said has been somewhat masked in the past couple years by SanDisk's share gains.

"We expect the majority of 2012 year-over-year revenue growth to be in the second half as overall demand improves and as the continued strong ramp of [solid state drive] sales become even more significant," Bruner said. "As the [solid state drive] business grows as a percentage of our mix, particularly in the enterprise segment, we believe seasonality will be less pronounced."

She also projected adjusted margins of 39% to 42% for the current period and full year, down from 44% in 2011. SanDisk also expects to spend $1.1 billion to $1.6 billion on capital expenditures this year, Bruner said.

For the fourth quarter, SanDisk reported a profit of $281.2 million, or $1.14 a share, down 42% from $485.5 million, or $2.01 a share, a year earlier. Excluding stock-based compensation costs, income tax adjustments and other one-time items, per-share earnings edged up to $1.29 from $1.27. Analysts polled by Thomson Reuters were expecting $1.26 a share.

The company's year-earlier result included a $203 million tax-provision benefit that skewed the latest earnings change.

Total revenue rose 19%, to $1.58 billion. The company's October forecast called for $1.5 billion to $1.6 billion.

Gross margin narrowed to 42% from 43.4%.

-By Shara Tibken, Dow Jones Newswires; 212-416-2189; [email protected]

--Drew FitzGerald contributed to this report.

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Sanjay Mehrotra President & Chief Executive Officer
Manish Bhatia Senior Vice President-Worldwide Operations
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Atsuyoshi Koike Senior Vice President-Technology & Fab Operations
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