I originally decided not to write about SanDisk Corporation (SNDK) this week for a change, in view of the company’s upcoming analysts day next Monday, following which there will be plenty to write about. But it turns out that I was wrong, since last Friday after the bell, SanDisk issued a statement that constituted a form of warning combined with an organizational shake-up.
This time, Citigroup analyst Craig Ellis was right when he and the others predicted that the NAND flash chip market would enter a state of oversupply in the first quarter of 2007, and that this would in turn, lead to a collapse in prices that would affect even advanced manufacturers such as SanDisk and Toshiba (OTCPK:TOSBF). The main cause of this is not just surplus manufacturing capacity due to the entry of new manufacturers such as Micron Technology (MU), but also the lack of new applications to soak up the surplus supply in the second half of the year.
In addition to the announced layoffs, SanDisk is also moving the sales management for all its products worldwide, save for the U.S., to Israel. This move was probably decided on in view of the vast experience that M-Systems Flash Disk Pioneers has in large-scale sales to Asian markets, as well its extensive contacts with leading handset manufacturers outside of the U.S., chiefly Nokia Corp. (NOK), Sony/Ericsson, Taiwanese manufacturer High Tech Computer Corp. and the Korean manufacturers.
The question that must be asked is why SanDisk CEO Dr. Eli Harari, who was absent from the conference call at the end of last month due to a scheduled vacation, did not wait with the announcement until next Monday’s analyst day, since he could have responded immediately to the many questions that are now being asked and which will now remain in the air for an entire week.
I would like to believe that Harari’s reason for this was that he wanted to ensure a kind of distance between the two events. Last Friday’s announcement with the ton of bad news was designed on the one hand, to lower expectations, with the good news kept in store for the meeting with analysts next Monday. I believe that SanDisk will have plenty of that in store for both the second half of 2007 and the years to come.
SNDK 1-yr chart
© Copyright of Globes Publisher Itonut (1983) Ltd. 2006. Republished on Seeking Alpha with full permission.