SanDisk shares dive, hit margin, price fears

A shopper poses with a SanDisk memory card beside a Samsung camera in Hong Kong September 17, 2008.

SAN FRANCISCO (Reuters) - SanDisk Corp shares plunged 10 percent on Friday as worries about falling chip prices and crumbling margins outweighed a better-than- expected quarterly revenue forecast.

The stock hit a trough of $46.18 and was down 9.9 percent at $46.24 in afternoon trading after the company reported a fourth-quarter adjusted gross margin of 43.7 percent, compared with Wall Street's estimate of 45.2 percent.

The shares of the maker of flash memory rose 70 percent over the past year as the company and its rivals benefited from relatively stable prices for flash memory, which is used in tablets and smartphones.

But the average price per gigabyte sold in the fourth quarter fell 15 percent from the previous quarter. New production capacity is expected to open up in 2011, pressuring prices further.

"This will be a good year, but it's not going to match last year," said Gleacher & Company analyst Doug Freedman. "You're going to have a declining gross margin curve throughout the year."

NAND flash is a commodity and SanDisk's fortunes are in large part determined by the supply-demand balance in the global market and its impact on pricing.

The slide in share price on Friday came despite Sandisk forecasting revenue above Wall Street's expectations for the current quarter and for 2011.

SanDisk, which has a reputation for issuing conservative forecasts, expects revenue of $1.2 billion to $1.275 billion for the current quarter, compared with Wall Street's estimate of $1.16 billion.

(Reporting by Noel Randewich; editing by Andre Grenon)