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SanDisk Shares Forward-Looking, Shorts Still Skeptical

Analysts covering SanDisk Corp. (SNDK) trimmed estimates immediately for the next earnings period following a disappointing quarterly report back on Apr. 17; the first quarter saw a gain of $17.9 million, or earnings of $.08 per share, well below Wall Street’s forecast of $.26 per share. This forced analysts to bring down the flash maker’s next earnings period profit from $.47 to $.42 per share where the consensus estimate now stands and slash the current year earnings estimate from $1.74 to $1.47, just about as fast as the price of NAND memory chips precipitously dropped during the prior quarter thanks to the burden of excess supply. But what happened next is a testament to what a forward-looking market can do to turnaround a stock price, especially one that had just traded below book value of $22.49 in March. Statements made by SanDisk CEO Eli Harrari during the conference call, noting that NAND flash component pricing was beginning to inch up and that there was the prospect of a pickup in demand in the back half of the year, spurred optimism in the stock. In the weeks following his comments, investors have latched onto SanDisk as shares have risen 53% from their 52-week low hit in March, and the investment community, particularly analyst Daniel Amir of Lazard Capital, has repeatedly mentioned the improving NAND outlook. Per the Associated Press, on April 21, Amir pointed out that Samsung was aggressively seeking new chip supplies for its cell phones that now use eight gigabytes of memory. Amir said it was a further sign that supply is tightening. Bringing it back to the present, in reiterating this positive development again today, Amir said that supply is becoming even more constricted thanks to demand from Apple and thus he sees contract prices for NAND memory chips increasing between 10% and 15% during the month of May. On this news, SanDisk shares have only built on its recent gains and for a brief while during the trading session, rose above $30 for the first time since January. One would think that a contributing factor to the rise would have to be a continued unwinding of the short position which accounts for about 9.7% of the publicly traded float, but maybe that isn’t so. Back in mid-March, the short position stood at 14.78 million shares, but the total has since increased dramatically, in fact by more than half, to 21.40 million shares in mid-April, the highest level in six months. It’s safe to say there are still skeptical shorts, but that is a curious thing because the short thesis of excess chip supply, declining prices and falling margins looks to be a thing of the past.

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Related Articles

• April 18, 2008 -- SanDisk CEO Affirms Market Optimism of NAND Turnaround
• April 4, 2008 -- SanDisk Rally All About Potential NAND Pricing Bottom
• March 28, 2008 -- JP Morgan Downgrade Could Mark SanDisk Bottom

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