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April 18, 2004

Flash memory price cuts cast shadow over sector

A brutal bout of price-cutting has cast a shadow over flash memory makers at the very time when demand is soaring as a result of booming sales of MP3 players, digital cameras and other consumer electronics devices.

By CBR Staff Writer

Shares in Lexar Media Inc plunged 30.87% to $8.76 Friday despite first-quarter figures where net income rose 127% to $9.4m after revenue more than tripled to $161m. What scared the market was not only lower profit than expected, but a forecast of second-quarter price declines.

Though CEO Eric Stang forecast that second-quarter revenue would rise on a sequential basis by 18% to $190m, he only expects breakeven to slightly positive net income. For the year as a whole, the Fremont, California-based company expects revenue to nearly double and earnings per share to be $0.60.

Indications of problems for the sector came earlier when rival flash memory maker Sandisk Corp also revealed an impressive set of first-quarter figures with net income up 154.9% at $67.3m after revenue rose 121.8% to $386.9m.

However, Sandisk CEO Eli Harari forecasts lower margins as it planned early price reductions averaging about 20%. This was designed to drive demand for its 256-megabyte memory products and speed retail consumer market interest in its 512-megabyte cards, focused primarily on its high-capacity products.

Lexar’s Stang acknowledged the company as in a battle, and said Sandisk’s move was not driven by industry conditions. We won’t sit by and let others cut price against us, he said.

This article is based on material originally published by ComputerWire

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