"Hey kid, some good advice
To bring your britches down to size:
Some modesty would suit you better
So why don't you give it a try?"
-- "Kid Ego," by Extreme, from the 1989 album Extreme
Unit prices on computer memory chips fell off another cliff last quarter, putting a crimp in SanDisk's (Nasdaq: SNDK) sales and earnings.
The company reported a 29% drop in average selling prices from last quarter, and a 61% plunge year over year. That's a steeper downslope than the 11% sequential weakening seen last quarter, and somewhat worse than the 23% neighborhood that management had forecast. Balanced by a 189% annual increase in megabytes sold, the end result was 8% higher sales at $850 million, and $0.08 of earnings per share.
CEO Eli Harari made an appearance on CNBC to explain the results. As you might expect, the pricing pressure comes from too much supply, even in the face of exploding demand, but Eli expected that imbalance start to correct itself over the next couple of quarters.
Intel (Nasdaq: INTC), Micron (NYSE: MU), and Hynix all announced cutbacks and delays in their plans for flash memory production growth over the last several weeks, and we're heading into periods of stronger end-user demand. On the other hand, SanDisk itself expects to increase manufacturing to keep pace with market growth. Eli Harari believes that the company is in a position to gain market share.
Looking beyond the next few quarters, management sees "tremendous growth" in emerging markets abroad, which should cancel out any downturn we'll see here in North America. Growing middle classes in places like India, China, and Eastern Europe are hungry for digital cameras, and "look at the lines in Cuba for a cell phone, I mean come on!" as the CEO put it.
We don't really need a new Apple (Nasdaq: AAPL) iPod model or more and bigger solid-state drives from STEC (Nasdaq: STEC) to power memory demand, but some manufacturing discipline from SanDisk and the rest would benefit the entire memory industry. SanDisk's selfish market share grab might work out for the company, but this is a major manufacturer whose moves have a real effect on market conditions. We'll see over the next two quarters whether SanDisk is really shooting itself -- and the entire sector -- in the foot.
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