Flash memory maker Lexar Media's (NASDAQ:LEXR) revenue is expected to rise by around 45% from last year's fourth quarter and well above company guidance given in mid-October. That's the type of growth you'd expect in the fast-growing flash memory market. So why did the company watch its stock tumble by 34.7% on Wednesday after announcing its preliminary fourth-quarter results?
The stock deflated on news of the net loss of $0.44 to $0.48 the company expects -- a giant drop from the $0.21-a-share profit in last year's fourth quarter. Even worse, the results show that the company will miss the $0.01-to-$0.04 profit it guided investors to expect in mid-October.
Leading to the profit debacle, the company said, were "greater than anticipated price reductions and price protection obligations." In plain English, they couldn't make money against cash-rich and profitable competitor SanDisk (NASDAQ:SNDK), which has been slaughtering its competition on pricing.
Pricing issues with flash memory are not new. In October, SanDisk's stock got smashed when it was revealed that NAND flash memory prices were weak. By the way, don't confuse NAND flash, which is akin to your computer's RAM, with the ROM-like NOR flash made by the chip giants AMD (NASDAQ:AMD) and Intel (NASDAQ:INTC). They, too, are locked in a pricing battle, and so far, AMD's flash is generating losses as well.
The only good news for Lexar today is that its legal battle with Toshiba (OTC BB: TOSBF) is finally headed for trial.
Debt-free Lexar, with $84 million in cash as of September 2004, is not going away anytime soon. But analysts expect the company to lose money in 2005. Continued losses are getting tiresome, and they're one reason the company has a $200 million shelf registration in place.
Lexar stock's 73% price decline over the past year has been toxic to the portfolios that have held it. With strong pricing pressure, no profits in sight, and new financing likely, this stock looks downright unappealing, even at today's prices.
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Fool contributor W.D. Crotty does not own stock in any of the companies mentioned.
