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(Reuters) - SanDisk Corp's SNDK.O quarterly results topped expectations as rising demand for chips used in smartphones and tablets and a limited supply drove up prices for flash memory, a trend that the chipmaker expects will continue.
The surprisingly strong margin outlook from the company and current-quarter revenue forecast of $1.5 billion, plus or minus $50 million, drove shares up 4 percent after market.
A rise in smartphone and tablet sales and higher adoption of solid state drives will propel demand for flash memory, Chief Executive Sanjay Mehrotra said on a conference call with analysts.
Chipmakers including SanDisk, Micron Technology Inc (MU.O) (MU.O), Elpida Memory Inc ELPDF.PK, SK Hynix (000660.KS), Samsung Electronics Co Ltd (005930.KS) and Toshiba Corp (6502.T) ramped up NAND production for smartphones and tablets, but the subsequent supply glut drove prices down as much as 60 percent earlier this year.
However, NAND prices have recovered in the last one month. Prices for 64 GB memory modules have risen about 17 percent, while 32 GB chips have gained 7 percent this month.
Toshiba's planned production cut has also helped firm up prices, but analysts say the full impact of the lower output is yet to be felt.
"We look to a very favorable pricing environment next year, because we expect that there is a strong supply-demand environment in the industry next year, and that the product mix will also give us a further improvement ...," Chief Financial Officer Judy Bruner said on the call.
A teardown of Apple Inc's (AAPL.O) iPhone 5 revealed that SanDisk was one of the suppliers for the smartphone. Supplies to Apple will add to sales in the current quarter, but Apple's reputation as a hard bargainer had left analysts worried about the Milpitas, California-based company's margins.
While SanDisk's third-quarter margins fell to 30.1 percent, it expects gross margins be around 31 percent to 35 percent in the current quarter.
For the three-month period ended Sept 30. SanDisk earned $77 million, or 31 cents per share, on revenue of $1.27 billion.
Excluding items, it earned 48 cents per share.
Analysts on average were expecting a profit of 33 cents per share on revenue of $1.22 billion, according to Thomson Reuters I/B/E/S.
"We were largely expecting recovery on NAND pricing, we have seen pretty good NAND results, even from Intel, and it's just one of the areas of strength left in the semiconductor market," RBC Capital Markets analyst Doug Freedman said.
The company's shares were trading up about 4 percent after the bell. They closed at $42.86 on Thursday on the Nasdaq.
Reporting by Himank Sharma in Bangalore; Editing by Roshni Menon