SigmaTel Cuts Guidance

On the heels of a profit warning by one if its largest customers, SigmaTel(SGTL) delivered one of its own Tuesday, saying a drop in NAND flash memory pricing had temporarily frozen the market.

However, investors, who had taken the stock lower since Friday on concerns of a profit shortfall, seemed buoyed by the hard numbers. Shares were recently up 2.1% in after-hours trading to $18.11 on Instinet.

SigmaTel, which supplies memory to digital music players, such as Apple's(AAPL) iPod Shuffle, said it now expects second-quarter revenue of $68 million to $72 million and earnings of 29 cents to 33 cents a share, down from prior guidance of revenue of $86 million to $95 million and earnings of 48 cents to 57 cents a share.

A Thomson First Call survey had expected the company to earn 51 cents a share on sales of $88.7 million.

SigmaTel expects gross margin to be in line with the company's previous guidance of 56%, plus or minus a percent.

The company said its revised outlook reflects retail sales related to graduation and Father's Day that were less than its customers' expectations.

Additionally, SigmaTel said, a "recent dramatic drop in NAND flash pricing has temporarily frozen the market. Over the last three to four weeks, NAND flash prices have dropped over 30% with expectations of an additional 40% drop over the next several months. This instability in pricing has impacted our customers' order patterns."

However, the company sees a pick-up during the next six months. "Lower NAND flash pricing bodes well for market growth in the second half of 2005, with the expectation that 1 GB flash players will retail for less than $100," said Ron Edgerton, SigmaTel's CEO.

Shares of SigmaTel dropped Friday after one of its largest customers, Creative Technology(CREAF) reduced its guidance, citing soft demand for MP3 players.

A host of downgrades followed, as analysts cited concerns of inventory buildups at both Creative and Apple, as well as continued reports that Apple has halted manufacturing of its high-end Shuffle player.

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