One third of the companies on the S&P 500 Index have so far unveiled their results, and this week it will be the turn in the technology sector of Google Inc. (Nasdaq: GOOG), which is due to report tomorrow after the bell. Its current market cap of $155 billion - half of that of Microsoft Corp (Nasdaq: MSFT) is 14 times its expected sales for 2007 and with its stock price currently cruising at around the $500 level, it had better be able to provide higher-than-expected results and guidance on Wednesday evening. Google is likely to report sales of $2.2 billion and earnings per share of $2.90.
One large half-Israeli company that is due to unveil its results today is SanDisk Corporation (Nasdaq:SNDK). While expectations for Google are sky-high, those of SanDisk have been waning every since it unveiled its third quarter results at the end of October. Save for two optimistic analysts, Daniel Amir at WR Hambrecht and Gurinder Kalra at Bear Sterns, everyone else is pessimistic. Even Merrill Lynch recommended short selling SanDisk stock several weeks back when it was at $42, since they believed that it would fall to $37. So far, everyone who followed their advice has lost out.
Two things have made the analysts pessimistic about SanDisk. The primary issue for them is the current state of imbalance in the NAND chip market, a surplus supply which has sent prices plummeting and which has also been seen in falling prices of end products at retail chains. These are likely to harm SanDisk’s gross profit margins. The other issue is apprehension about the results of the merger with M-Systems Flash Disk Pioneers, which was closed at the end of November, and which is likely to be expressed in full, mainly in the company’s guidance for 2007 as a whole. A big merger always arouses anxiety just before the newly merged company unveils its first report.
When SanDisk published a better-than-expected report for the third quarter of 2006, a few pessimistic analysts said, “fine, but the fourth quarter will be lousy.” From what I have read lately, the same analysts are now saying, “the fourth quarter will be excellent but the first quarter of 2007 will be lousy.” And when SanDisk beats all estimates for the first quarter, they’ll say the same thing about the second quarter and this is the sort of catch-22 scenario that can go on endlessly. It’s difficult to predict how the stock will fare after the end of the session, even if SanDisk does beat the estimates for the fourth quarter and provides, as expected and in line with cyclical trends, weaker guidance for the first quarter of 2007.
When Apple Computer Inc. (Nasdaq: AAPL) unveiled results that beat the estimates and then provided disappointing guidance, its stock lost a few percentage points in response, since the company had already reached its annual high. SanDisk, on the other hand, is currently not far off its annual low, so it could, perhaps, actually gain this evening, assuming that like Apple, it too reports strong results but provides weaker guidance. After having been intimidated by analysts for several weeks now, investors may well greet the company’s results with a sigh of relief. “Is that it?” they’ll say and perhaps they’ll even pile into the stock together with a few short traders.
As I see it, both the upcoming results and guidance are old news. After launching a series of amazing products at the recent CE 2007 conference in Las Vegas, I am interested to know exactly when these will start to have an impact on SanDisk’s sales and profit, since some of them are nothing less than dramatic. I would like to know, for example, when SanDisk will reveal that it is already manufacturing chips based on M-Systems’ x-4 technology, since I have a feeling that these chips were indeed among the company’s wares at Las Vegas but were hidden in one of its products.
I am also wondering when SanDisk will reveal that it has a giant customer, which is set to launch a new range of laptops fitted with the company’s 32Gb solid state flash based-drive, which was developed in Kfar Saba and unveiled in Las Vegas. Will SanDisk take any part in the fanfare surrounding the commercial launch today of Microsoft’s Vista operating system? It has already announced that it sold/gave Microsoft 5,000 USB devices with Vista installed on them to hand out to reporters. Will this lead to a wider distribution of Vista on SanDisk’s secure USB devices?
Published by Globes [online], Israel business news - www.globes.co.il - on January 30, 2007
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