Financial

SanDisk slips up

posted on 22 July 2008 09:38

Ugly Q2

Citing a rapid deterioration in consumer confidence, SanDisk has announced an unexpected second quarter loss of $68 million compared to a $28 million profit in the year ago Q2 07 quarter.

Eli Harari, Chairman and CEO, said: “Our second quarter sales were well below our expectations due to the rapid deterioration in consumer confidence which impacted our sales in U.S. retail and to handset OEMs."

Overall revenues rose just 1 percent in the quarter to $816 million but product revenue was $688 million, down 5% year-over-year. This caught SanDisk out with its product capacity and inventories both higher than actual demand required. Annoyingly for the company total megabytes sold in the second quarter were a record and increased 120% year-over-year and 14% from the first quarter of 2008. Price declines made the MB-shipped increase moot. The average price per megabyte sold declined 55% on a year-over-year basis and 15% sequentially.

Harari said: "Product gross margin was negatively impacted by the lower sales volume and a substantial inventory write-down. Overall demand is expected to improve in the upcoming holiday season; however, industry-wide Flash inventories remain excessive and pricing and margins will therefore remain under pressure until supply and demand come into balance."

SanDisk is curtailing its production capacity growth in the face of this waning demand: "We are taking significant actions to slow our captive supply growth, which will reduce our capital expenditure commitments, and allow us to better manage our inventory. We are also continuing to improve our cost structure through transitions to 43 nanometer MLC (multi-level cells) and the industry’s first commercialized 3-bits per cell NAND flash. While the industry downturn has been more pronounced and severe than expected, we are optimistic about our long-term renewed growth when the market rebounds.”

The company is pushing back a production capacity increase at its Fab 4 facility to at least April next year. It is also holding a decision to invest in a Fab 5 facility until market conditions improve.

Apple has announced it had a very strong quarter but has lowered exectations for its third quarter, pointing to reduced consumer spending levels. It appears SanDisk has hit the reduced consumer spending buffers before Apple.