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SanDisk Rally All About Potential NAND Pricing Bottom

SanDisk Corp. (SNDK) shares are faltering, albeit just slightly during today’s trading session, exhibiting a lot of strength by surprisingly holding on to the majority of its sizable gains from the past week. That’s probably because the reprieve from the downward spiral is looking like it’s more than just a technical, short covering bounce; with the backing of a low forward earnings multiple, the upswing has been staged on signs that prices in the flash memory chip market may have stabilized. Oversupply has been a strong headwind that has crimped margins, prevailing in driving down SanDisk shares which were, at its low point of $19.54 on March 20, down an astounding 41.1% year to date. The reversal began on Monday when Japan’s Elpida Memory Inc. and Taiwan’s Nanya Technology Corp. both announced they would raise prices for DRAM chips. But that was only the first in a series of positive events that acted as a catalyst for a major uptick in SanDisk stock. It only picked up some steam the next day when the investment community began to become more cognizant of the notion that prices may have hit a bottom. As the Associated Press noted Tuesday, Piper Jaffray analyst Amit Kapur said the market may have shown “undue concern” for SanDisk profitability, especially as NAND flash chips continue to see exceptional demand from the cell phone market. News that Hynix would curb NAND chip production further built the case that contract pricing could improve, and the following day, Citi jumped on the SanDisk bandwagon. Per the Dow Jones Newswire, the firm cut estimates and said that after a dismal winter of seasonally weakened demand, better days are ahead thanks to brisk demand in the next quarter coupled with the stemming of “brutal NAND price deterioration” due to moves by Hynix and Samsung to cut production. To quote Citi, “SanDisk shares appear to be bottoming, and if contract pricing improves as we expect, the shares should begin to accelerate.” Despite the recent price appreciation, SanDisk still shares still carry a relatively cheap valuation and with a fundamental backing to the rally, the counter trend move may have some legs.

Related Articles

• May 5, 2008 -- SanDisk Shares Forward-Looking, Shorts Still Skeptical
• April 18, 2008 -- SanDisk CEO Affirms Market Optimism of NAND Turnaround
• March 28, 2008 -- JP Morgan Downgrade Could Mark SanDisk Bottom

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