The two profit warnings issued by

M-Systems Flash Disk Pioneers

(Nasdaq:FLSH) have apparently made it possible for the company to post realistic first quarter results. The flash memory manufacturer published on Monday revenues of $15.2 million, a tad over the lowered revenue projection the company had forecast a mere fortnight ago. This number is unchanged from the previous quarter's revenues.

The company has reported a seven cents per share loss, which is one cent below the anticipated eight cents per share loss. However, M-Systems also reported that it wrote off $11.4 million worth of stock, and investments worth $1.1 million. The company's operating loss for the quarter reached $14.8 million, and its loss per share, one-time expenses included, comes to 54 cents per share.

Company to cut down on costs

M-Systems also warned today that it may not present any growth in its second quarter, as compared to its Q1 results. This means the firm may again post losses in Q2, and its poor performance could likely repeat itself in the year's third quarter.

"Though we believe many of our customers will make up inventory shortages within the current quarter, we are considering the possibility that the regression we are experiencing will affect our results in the third quarter as well. This is why we are taking aggressive measures to reduce our level of stock, as well as lowering the level of our own expenses," said company president, Dov Moran, in response to the latest reports.

M-Systems has not said whether or not it intends dismissing some of its staff. The company's management painstakingly clarifies that its poor performance expectations makes it impossible to accurately predict the results of the next few quarters, which could change substantially depending on changes in the economy.

No growth expected in next quarter

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Moran adds that the general slump in the markets, especially the telecom sector, has impacted on the company's first quarter results. The company has experienced a decline in demand for its products, and has seen its customers allow their stocks to dwindle. The firm has also caved in to pressure regarding its prices, as predicted by analysts covering the share.

Following the release of M-Systems' results, it would appear that a pessimistic

Merrill Lynch

forecast on the company published after M-Systems released its second profit warning, could turn out to be realistic. Merrill Lynch estimated M-Systems would post a loss of 27 cents per share in 2001, a drastic change of direction from the profit of 31 cents per share earlier anticipated by the bank.

In contrast,

Salomon Smith Barney

which also covers the share had anticipated, even after the double profit warning, a profit of 18 cents for the entire year of 2001.

A billion in sales in the next five years?

M-Systems' ray of light comes in the form of its cash reserves, which are currently at $115 million. SSB has recently said that the company expects no unusual expenses this year, and that it may well survive the crisis at its current cash-burning rate, with no considerable impact on its cash reserves.

Despite its cash reserves, it still is hard to envision M-Systems reaching its sales target of $1 billion in five years time, a target that Moran has reiterated more than once during the last two months.