Memory chip maker SanDisk Corp.'s (SNDK) offer of first quarter and full year revenue outlook and gross margin depressed market sentiments thereby dragging the stock more than 8 percent in the extended hours trading. The company had delivered better than expected fourth quarter results on an adjusted basis.
SanDisk's gross margin and operating margin witnessed downside during the fourth quarter and the guidance during the conference call indicate that it will be further down in the first quarter thus affecting profitability.
The company's outlook seems to have been derived from price fall witnessed lately during the fourth quarter and the expectations of entering into 2012 too.
Q4 Results
The Milpitas, California-based SanDisk reported net income of $281 million, down 42 percent from $485 million and earnings dipped 43.3 percent to $1.14 a share from $2.01 a share in the prior year quarter. On an adjusted basis, net income rose 3.3 percent to $317 million from $307 million and earnings grew 1.6 percent to $1.29 a share from $1.27 a share in the year-ago quarter.
Total revenues increased 18.8 percent to $1.58 billion from $1.33 billion in the previous year quarter.
Wall Street analysts predicted the company to earn $1.26 a share on revenues of $1.57 billion for the fourth quarter.
The company's adjusted gross margin slipped to 42 .9 percent from 43.7 percent in the year earlier quarter and from 44.3 percent in the third quarter. Similarly, operating margin skid to 28.5 percent from 29.0 percent in the year-ago quarter and 29.4 percent in the third quarter.
Outlook
During the conference call, SanDisk provided revenue guidance of $1.3 - $1.35 billion for the first quarter. Similarly, the company offered revenue outlook of $6.2 - $6.6 billion for the full year. The company indicated gross margin of 39 – 42 percent.
Street analysts expect the company to deliver revenues of $1.46 billion and $6.65 billion for the first quarter and full year respectively.
Our Take
SanDisk comments on gross margin weaken sentiments. The company needs to make sure that industry weakness impact is limited to some extent and not allow it to eat into more profitability. The outlook offers seems to provide less scope for the stock to see any significant upside.
