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Cheap flash sinks SanDisk's profits

Misty margin-filled memories

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SanDisk's second quarter profits sunk 71 per cent as the #1 flash memory manufacturer suffered through declining prices, but promised market stabilization is in the cards.

Q2 income floundered at $28.5m during the quarter, a far reach from the $95.6m the company earned during the same period last year. According to SanDisk, the average price per megabyte sold declined 65 per cent from last year.

The company's revenue increased 15 per cent year-over-year, reaching $827m compared to $719m in Q2 '06.

License and royalty revenue for the quarter was $107m, up 30 per cent year-over-year.

“Product gross margins stabilized despite substantial price reductions in the second quarter," said SanDisk CEO Eli Harari. "We expect product gross margins to improve gradually in the second half of the year, driven by more moderate price declines resulting from an expected improvement in the balance between demand and supply, declining manufacturing costs and strength in our income from royalties."

The company expects to turn their profits around in the second half of 2007 and in 2008 with the bombardment of new flash memory-ready consumer electronics entering the market.

Harari's confidence sent SanDisk stock up nearly 6 per cent to over $3 a share in after-hours trading.

For the company's third quarter, they expect revenue in the range of $750m to $825m. License and royalty revenue is forecast between $105m and $115m.

While gross margins in the second quarter were at 16.2 per cent, Harari expects them to land between 17 and 21 per cent in the third quarter. ®

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