SanDisk posts sharp quarterly loss; shares tumble

SAN FRANCISCO (Reuters) - SanDisk Corp (SNDK.O) quarterly results swung sharply to a loss in on Monday amid an unexpected decline in sales and warned worse was in store as it further slashes the prices of its memory chips in the current quarter, sending its shares down 14 percent after-hours.

Chief Financial Officer Judy Bruner warned investors to expect a sharp drop in third-quarter revenue as the company moves aggressively to cut the prices of its memory chip products to reduce a build-up of inventory.

"We are forecasting third-quarter total revenue between $750 million and $850 million," Bruner told investors on a conference call following its second-quarter report.

SanDisk reported revenue in the third quarter of 2007 of $1.04 billion.

The forecast is far below the range of $964 million to $1.24 billion expected by analysts, according to Reuters Estimates. The average forecast had been $1.09 billion.

Following the results and the lowered outlook, SanDisk shares fell to $15.48, a decline of 13.8 percent in extended trading. The shares had gained 2 percent to close at $17.93 on Nasdaq earlier on Monday.

SanDisk shares have been cut in half since mid-May, when they reached a recent peak just above $33.

Bruner said price declines for SanDisk, a leading maker of flash-memory chips used in consumer electronics and mobile phones, will be more aggressive in the second half of this year than they had been in the second quarter, when average prices per unit of memory declined 55 percent from a year ago.

She warned it was likely to take several quarters to reduce inventory levels at the company amid an industry-wide glut of capacity. She said inventory levels could still be above current levels by the end of the fourth quarter.

SanDisk said it was delaying the next phase of expansion at the Fab 4 production plant it operates with Toshiba Corp (6502.T) in Japan until April 2009.

The Milpitas, California-based company said it was pushing out its decision to invest in its Fab 5 plant until industry conditions improve, as it seeks to protect its balance sheet.

"Industry-wide flash (memory chip) inventories remain excessive and pricing and margins will therefore remain under pressure until supply and demand come into balance," Chairman and Chief Executive Eli Harari said in a statement.

He blamed the disappointing second-quarter results on "the rapid deterioration in consumer confidence," which hurt sales to U.S. retail customers and to mobile handset makers.

The company posted a second-quarter net loss, including one-time items, of $68 million, or 30 cents per diluted share, from a profit of $28 million, or 12 cents per diluted share, in the year-earlier quarter.

Revenue fell 1 percent to $816 million instead of growing 9 percent, which was the average analyst estimate.

Excluding the impact of merger-related charges, stock option expenses and related tax effects, SanDisk had a net loss of $22 million, or 10 cents per share, down from an adjusted year-ago profit of $72 million, or 30 cents per share.

Analysts had expected a net loss, on average, of 1 cent per diluted share, according to Reuters Estimates. Excluding one-time items, Wall Street was expecting a profit of 12 cents per share.

President and Chief Operating Officer Sanjay Mehrotra said SanDisk planned to make aggressive moves to cut the prices of its products during the third quarter, after failing to do enough to compete in the second quarter.

"In hindsight, we believe we should have moved pricing more aggressively in Q2 to sell additional product and lower inventories," Mehrotra said.

Until the latest quarter, SanDisk had managed to remain profitable, despite average price declines around 60 percent a year for the last two years running, thanks to even faster improvements in manufacturing efficiency

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While bad news for the company and its investors, steep price declines for memory chips translate into rapid price declines for all manner of hot consumer gadgets for which flash memory chips are a key component.

SanDisk jointly operates Fab 4 with long-time manufacturing partner Toshiba Corp (6502.T) at Toshiba's Yokkaichi operations in the Mie Prefecture of Japan. The company has not yet announced a location for its proposed Fab 5 plant.

(Reporting by Eric Auchard; Editing by Gary Hill and Andre Grenon)