SanDisk Corporation (NASDAQ:SNDK), a top maker of flash memory chips, is taking its second big plunge of the year — this time thanks to an earnings warning.
In a press release today, SNDK said it projects revenues to hit $1.3 billion for the quarter ended March 29 — off from the company’s prior forecast of $1.4 billion to $1.45 billion, and shy of the Street’s estimates for $1.44 billion.
SanDisk CEO Sanjay Mehrotra made the following understatement: “We are disappointed with our financial outlook.”
The result was a 17% slump by midday Thursday that sent SanDisk stock to the $67 level. Shares traded as high as $106 back in December.
What’s Eating SanDisk Stock?
There are a host of reasons for SanDisk’s deceleration. Some are internal, such as product qualification delays, supply issues and difficulties with closing enterprise deals. But it also looks like deteriorating macro trends, such as significant price cutting in certain markets, are taking their toll.
Earlier this year, a SanDisk earnings warning for the first half of 2015 knocked down SNDK stock by some 20%, then shares started to recover up until today.
But the latest warning could be much more prolonged. SanDisk’s earnings forecasts for the next quarter and the full year have been withdrawn, and SNDK won’t provide any details on this front until the next earnings call, which will be on April 15.
The broader chip sector has been under pressure, too; Intel Corporation (NASDAQ:INTC), Qualcomm, Inc. (NASDAQ:QCOM) and Micron Technology, Inc. (NASDAQ:MU) are all off between 6% and 12% over the past month alone. Choppy economic growth across the world has weighed on the industry, but so too has the soaring dollar, forcing U.S. operators to cut prices to remain competitive in international markets.
Bottom Line
The long term actually looks promising for SNDK thanks to critical drivers such as Big Data, social media, online video and of course, the continued growth in smartphones. Plus, the company should benefit from emerging sectors such as the smart home, wearables and connected cars.
And SanDisk stock is a relative bargain in tech terms, trading at just 11 times forward earnings, vs. nearly 18 for the S&P 500. Also making the case for SNDK stock are stock buybacks; SNDK added $2.5 billion to its repurchase program earlier this year, bringing the total to about $3 billion.
But SanDisk stock is not a buy now.
Right now, it’s not clear just how bad the situation is for SanDisk’s core business. Meanwhile, it looks like the company is having many issues with its logistics and supply chain, which could mean loss of customers and opportunities.
We could be due for even more bad news when SanDisk earnings come out in April. For now, watch SNDK stock from the sidelines.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
