Flash memory and consumer device maker SanDisk (NASDAQ:SNDK) is reporting results for Q2 2006 tomorrow night. Can this margin hog get back on track, or were last quarter's results a harbinger of hard times ahead?

What analysts say:

  • Buy, sell, or waffle? Twenty analysts follow Sandisk. While 10 of them recommend buying the stock, nine are asking you to just hold on for now, and a lone analyst is saying "sell."
  • Revenues. Analysts are looking for a 34% year-over-year improvement in sales, to $691 million.
  • Earnings. The average analyst forecast calls for $0.44 of quarterly GAAP profits, up from $0.37 a year ago.

What management says:
SanDisk management is bullish on the future of flash memory and the devices it powers. The company is planning to build a $5.2 billion memory-chip factory in Japan, in partnership with Toshiba, and the product launches are coming hard and fast. And with the launch of iDont.com, SanDisk seems to have a large chip on its shoulder regarding the media-player market.

What management does:
Even Apple (NASDAQ:AAPL) should be jealous of SanDisk's margins. While net and operating margins have been jumpy, they both still outpace other gadget- and memory-makers by a mile, and 40% gross efficiency is an untouchable stat in this sector. Last quarter saw a downtick across the board, so the challenge now is to regain the upward momentum.

Margins %

1/05

4/05

7/05

10/05

1/06

4/06

Gross

38.0

38.8

39.0

40.8

41.6

40.0

Operating

23.0

22.7

21.5

23.2

24.5

22.6

Net

15.0

15.1

14.4

15.7

16.8

14.0
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
SanDisk's stock has taken a beating lately, dropping more than 25% in the past month on no particular bad news, except for far-future speculation -- more on that in a second, though. It's true that the stock market has been taking a nosedive as well, and that technology companies like this one usually magnify any general market up- or downturns. But has SanDisk been punished in excess?

The company seems to be planning ahead with the chip manufacturing expansion, and its integrated end-to-end parts and end-product manufacturing capacity gives it better margins than most any hardware manufacturer out there. Micron (NYSE:MU) seems to be remaking itself in SanDisk's image, and you know what they say about copycats and huge compliments.

Freescale (NYSE:FSL) just presented a new memory technology that the company claims will replace flash memory, and that may well be true. But chances are that it will take several years, and flash technology isn't standing still in the meantime. I'd be surprised if SanDisk management came across as anything but optimistic in tonight's earnings call, and while I'll listen with some interest for references to competition from Freescale, I'm more interested in a reversal of last quarter's margins hiccup.

Competitors:

  • Micron
  • Apple
  • Freescale Semiconductor
  • Spansion (NASDAQ:SPSN)
  • Infineon (NYSE:IFX)
  • Imation
  • Creative (NASDAQ:CREAF)
  • Samsung

Fool contributor Anders Bylund owns none of the stocks discussed here. If you can't remember the Fool's disclosure rules , these companies have some memory to sell you. You can check out Anders' holdings for yourself.