SanDisk tumbles as excess supply sinks 2Q results

The company posted a loss Monday, well below the expectations of Wall Street analysts, who had predicted a profit. Revenue also fell short, and SanDisk said it plans to reduce future capital expenses and inventory growth by delaying investments in certain chip factories.

Shares plunged $4.31, or 24 percent, to close at $13.62. Earlier, the stock hit a five-year low of $13.06.

Citi Investment Research analyst Craig A. Ellis said the company has no clear path to profitability and downgraded it to "Sell" from "Hold.

The analyst called the quarter's results a "huge miss," and added that the company's on-hand inventory rose 15 percent. This on-hand inventory, the analyst added, is expected to build up further in the third quarter, possibly risking fourth-quarter results.

SanDisk makes flash memory-based data storage products, such as memory cards used in digital cameras, laptops, mobile phones and other electronics.

Chairman and Chief Executive Eli Harari said during a conference call with analysts Monday that he is "disappointed with our second-quarter results."

"Our team is adapting quickly to the deteriorating economic climate, and we are taking aggressive steps to protect our balance sheet, and improve our competitiveness through these difficult times," he added.

SanDisk and the flash memory industry are facing excess supply issues, Harari said during the call. Part of this, he added, is because demand for flash megabytes has grown slower than expected due to the weakening U.S. economy. In addition, supply has been growing quickly.

The company said it plans to curtail supply growth until market conditions improve.

Robert W. Baird analyst Tristan Gerra said the "dismal" second-quarter results and third-quarter guidance "invalidate the thesis of a potential near-term rebound in SanDisk's shares." He now expects the company to post a net loss for another four quarters.

A SanDisk spokesman said the company does not comment on analyst comments, especially when they are projections.

The company said during the conference call it expects sales of $750 million to $850 million for the current quarter. This is well below the $1.09 billion that analysts polled by Thomson Financial are forecasting.