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Tech stocks - Monday, February 2, 2009

The Stimulus Package Needs Some Stimulus

The market today certainly felt the effects of a stimulus package hanging in the wind as investors got a little nervous today. Making them even more nervous is hearing that President Obama is now considering attacking the compensation and bonuses of executives on Wall St.

Nobody likes hearing that executives of failing companies are getting absurd bonuses. Still, the staff at tech:stocker is hoping that President Obama is temporarily switching the focus to money grubbing execs so he can develop a comprehensive plan for the "bad bank". We're not losing hope and neither should you. Hopefully President Obama will keep everything moving so the economy will pull out a "W" like the Steelers.

With Sandisk (SNDK:NASDAQ) reporting its Q1 results today, we decided to revisit the largest marker of flash card storage products.

Back in July 2008 we put a target price of $20 on the stock. We definitely didn't get this one right. One of our several misreads on the stock was that the company would start managing its cash a little better. That obviously hasn't happened as SanDisk was bludgeoned with over $2 billion in one-time charges during the quarter and is strongly considering an equity offering that would help the company raise $300 million to $500 million. Unfortunately for SanDisk, the offering would dilute the companies retreating shares by 12 to 20 percent.

SanDisk definitely needs the cash as Q4 revenues declined 31 percent from the same quarter in the previous year. Even though the Q4 revenues were actually up 5 percent from the previous quarter, this marginal piece of good news certainly won't excite many investors as total revenue for 2008 was off 14% from 2007.

The analysts' consensus prediction for earnings was a loss of $0.60 per share. SanDisk blew that number out of the water by posting a loss of $1.65 per share. Considering the companies previously mentioned one-time charges of over $2 billion, we don't expect the company to have a similar quarter in the near future. That's about the only good news we have for investors of this stock.

Like many other companies in the storage industry, SanDisk is suffering from oversupply and not enough demand to relieve the company of their excess storage. While companies like IDC predict a 2.8 percent yearly growth in demand for the storage industry, we think it's going to be a little leaner this year and SanDisk's sales are going to continue to suffer.

Considering that SanDisk announced their shortcoming after the market closed, we expect investors to flee this stock in droves tomorrow and even Wednesday. Depending on how far it falls, there might be an opportunity to invest as we are placing a 12-month target of $8 on this storage giant. And if you do decide to invest in SanDisk later this week, only place a small investment in the company as they have a lot of work to do before they will become profitable.