SanDisk Not Flashy Enough

Updated from 4:51 p.m. EST

SanDisk(SNDK) surpassed Wall Street expectations Thursday, boosting its sales 37% as consumers continued to snap up the company's flash memory products.

But the company's plans to aggressively cut prices may have given some investors the jitters. Shares of SanDisk plunged 12.2%, or $8.63, to $62.05 in extended trading.

The Sunnyvale, Calif., company earned $134 million or 68 cents a share, on $751 million in sales for the quarter ending Jan. 1. SanDisk had sales of $549 million in the year-ago period.

The gain was larger than the average analyst expectation, which called for 62 cents EPS on $727 million in sales, according to Thomson First Call.

The total megabytes sold in the fourth quarter increased 49% sequentially, at the high end of the company's guidance of a 40% to 50% increase. The average price per megabyte declined 13% because of holiday promotions, less than the 15% to 20% decline the company had forecast.

SanDisk signaled that it intended to drastically slash prices in 2006, beginning in the first quarter, when the average price per megabyte would decline 25% to 30%.

The idea, said CEO Eli Harari, is to stimulate demand for the higher-capacity flash chips being produced at SanDisk's factories.

The news comes a day after Israel-based flash memory maker M-Systems(FLSH) reportedly warned analysts during its earnings conference call that it expects margins in the current quarter to deteriorate as retail prices sink by as much as 30%.

Shares of M-Systems were down 12.5% on Wednesday.

Flash memory makers such SanDisk and M-Systems are facing increased competition. Intel(INTC), the world's largest chipmaker, recently announced that it was starting a flash memory joint venture with Micron Technology(MU).

But some analysts said that SanDisk's pricing cuts were standard practice in the flash business.