SanDisk: Further Downside Ahead

SanDisk Corp. (SNDK) reported disappointing Q3 earnings results due to negative product gross margin and excess inventory. We expect the company’s earnings losses will be followed in 2009 even with substantial cost cutting and restructuring efforts.

We believe pricing is likely to remain weak until demand improves, which is not likely until the consumer spending picture strengthens. As such, we are reducing our estimates for 2008 and 2009.

We believe there is risk of further downside and do not expect any meaningful improvement in 2009. We therefore maintain our Sell rating on SNDK shares and lower our six month price target to $5.00.

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