SanDisk shares rally on raised outlook

* SanDisk benefiting from ASP, demand strength-analyst

* Shares up 9.7 pct

* Rival memory maker Micron up

SAN FRANCISCO, March 1 (Reuters) - Shares of SanDisk Corp (SNDK.O) surged 10 percent on Monday after the flash memory maker raised its forecast last week and said the supply-demand balance would be healthy in the industry into next year.

SanDisk's upbeat comments about the NAND market at its analyst day on Friday also pulled up shares of rival memory chip maker Micron Technology Inc (MU.O), whose shares climbed 6.7 percent to $9.66.

SanDisk, the top maker of NAND flash memory cards, forecast first-quarter revenue of $925 million to $1 billion, up from its previous estimate of $875 million to $950 million. Wall Street was forecasting revenue of $937 million. [ID:nN26219612]

The company said a healthy supply-demand balance in the flash industry should last through 2010 and into 2011. SanDisk said it feels "fairly comfortable" that 2010 revenue will come in at the high end of its forecasted range of $4 billion to $4.4 billion.

JMP Securities analyst Alex Gauna raised the price target on SanDisk to $34 from $30 and maintained a market outperform rating.

"The company is benefiting from ongoing strength in ASPs (average selling prices) as well as stronger than expected OEM (original equipment manufacturer) demand (which we infer is due to better demand from handsets)," Gauna wrote in a note to clients.

SanDisk sells its flash to the top 10 mobile handset makers.

The company also lifted its gross margin, excluding items, outlook to 34 percent, plus or minus 2 percentage points.

Caris & Co analyst Craig Ellis raised his price target to $38 from $37 and reiterated his buy rating. He said the company continues to hold its ground on spending plans.

But Auriga analyst Daniel Berenbaum kept his price target at $23 and maintained his sell rating on SanDisk.

"Sandisk highlighted some key positives at its analyst day on Friday, and NAND sales to both consumer and OEM channels look set to support better pricing than we had anticipated for at least another six months," Berenbaum wrote.

"However, decelerating bit growth and cost reduction will likely weigh on forward potential."

He prefers memory Micron to SanDisk. (Reporting by Gabriel Madway; Editing by Derek Caney)