SanDisk raises margin outlook, assures on Japan

By @ibtimes on

SanDisk Corp raised its 2011 margin outlook and dismissed worries that Japanese logistic snarls were squeezing the supply of vital components like silicon wafers.

Executives said they saw no constraints for now on raw material supply as they work to find alternative sources for components, which some on Wall Street had pointed to as potentially hurting revenue this quarter.

The flash memory supplier, which also reported a better than expected 19 percent increase in revenue after strong smartphone and tablet demand propped up first-quarter chip prices, raised its forecast on 2011 gross margins to 41 to 44 percent from 39 to 42 percent previously.

At this point, we're pretty comfortable with where we are. We don't anticipate any disruption to our supply chain, said Chief Financial Officer Judy Bruner.

We feel pretty good with what we've been able to do in terms of maintaining an inventory of raw materials, such as wafers, Bruner told Reuters in a brief telephone interview.

SanDisk shares, which slid as much as 3.5 percent after hours following its earnings report, recovered somewhat to stand roughly flat.

The stock had gained almost 10 percent since Japan's largest-ever earthquake on record, on expectations that the subsequent curtailment of chip supply would boost spot prices.

Some analysts warn that persistent disruption to its production from Japan -- which accounts for more than a 10th of global electronics components -- due to intermittent power and unreliable shipping will begin to weigh on sales this quarter.

Others say NAND makers may face a shortage of silicon wafers needed to produce chips. SanDisk's chip-manufacturing joint venture with Toshiba Corp sources the majority of its components from Japan, Asia's second-largest economy.

MEMORY ROARS AHEAD

SanDisk stopped a key NAND factory following the earthquake -- with semiconductor manufacturing hyper-sensitive to tremors -- but it quickly got back up to production.

Flash memory demand is roaring as a crucial component in Apple's iPad and other tablets and smartphones. But it is a commodity product and SanDisk's fortunes are in large part determined by the balance of supply and demand in the industry.

They're basically saying no major effect from the Japanese earthquake, said Stifel Nicolaus analyst Kevin Cassidy. There's better demand than expected and the flash market is robust. Supply is lower than demand.

The global NAND flash market is expected to rise to roughly $23 billion this year from less than $20 billion in 2010. SanDisk has forecast 2011 revenue of $5.3 billion to $5.7 billion.

The flash memory supplier said net income was $224 million or 92 cents a share. Excluding items, earnings rose 8 percent to $1.03 a share from 95 cents a year earlier, exceeding Wall Street's target of about $1.00.

Revenue rose 19 percent to $1.29 billion, also exceeding analysts' average forecast for $1.26 billion according to Thomson Reuters I/B/E/S.

Shares of SanDisk slid to $47.89 from a regular-session close of $48.99.

(Reporting by Edwin Chan; Editing by Gary Hill, Steve Orlofsky and Bernard Orr)

Join the Discussion