Share Price Shrinks 11.3% on Foreseeable Revenue Decline

SanDisk Corp. share price fell 11.3% to $35.91 following the announcement of their first quarter 2012 earnings last Thursday. They garnered a total revenue of $1.21 Bil, a decrease of 24% on a sequental basis and 7% on a year-by-year basis, resulting to GAAP net income of $114 Mil or $0.46 per diluted share. On the other hand, their non-GAAP net income was $156 Mil or $0.63 per diluted share, which plunged from last year’s GAAP of $281 Mil or $1.41 per diluted share and non-GAAP of $317 Mil or $1.29 per diluted share.

CEO Mehrotra stated that their first quarter results were adversely impacted by lower-than-expected pricing and demand weakness in certain segments and they expect this to continue in the second quarter as well. Despite this, they believe that the firm would have a seasonally stronger demand environment in the second half of the year, at the back of their strategy of diversifying portfolio of mobile and SSD solutions, allowing them to deliver strong sequential revenue growth in the third and fourth quarters.

Moreover, CFO Bruner guided lower revenue expectations to be approximately $1 Bil, plus or minus $50 Mil in Q2 2012. Their revenue guidance considered three major factors mainly steeper price decline in the first half of 2012 which would result in considerably lower price levels for the whole year, the consolidation in the market share of the mobile providers and lower OEM card demand for the year.

SNDK is currently trading at 1.0x EV/IC’ and a P/E’ of 5.7x, with the market implying a 4% ROI’ and 9% 5-year IC’ growth. The market appears to be pricing in already the decrease in revenue in the coming periods brought about by the challenges the management considered in coming up with their target. However, the consensus remains firm that improvements on the company’s valuation would still exist in the future.

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