SanDisk CEO to Retire; Earnings Fall Short of Apple-Inflated Expectations

SanDisk Corp. said Chief Executive Officer Eli Harari will retire and reported earnings that disappointed investors after one of its biggest customers, Apple Inc., posted surging sales. The shares fell 7.5 percent.

The company posted second-quarter sales of $1.18 billion and profit of $1.08 a share, excluding some costs. While those numbers topped average estimates, investors were looking for more growth after Apple’s performance, said Daniel Berenbaum, an analyst at Auriga Securities in New York.

SanDisk, the biggest maker of flash-memory cards, supplies components to Apple, whose quarterly results beat sales and profit projections this week. Apple sold 3.27 million iPads and 8.4 million iPhones -- all of which use flash memory. That allowed the company to post sales of $15.7 billion, a billion dollars more than analysts had anticipated.

“When Apple is great and SanDisk is only in line, it’s not good enough,” said Berenbaum, who recommends selling SanDisk’s stock. “People were probably expecting a clear beat.”

SanDisk fell $3.25 to $39.85 in late trading after the report. The shares have climbed 49 percent this year on the Nasdaq Stock Market.

Harari, 65, will retire on Dec. 31, when President Sanjay Mehrotra will take the job, Milpitas, California-based SanDisk said today in a statement. Harari will stay on as an adviser for two years. Michael Marks, a board member since 2003, will assume the role of chairman from Harari on Jan. 1.

Price Swings

After co-founding SanDisk 22 years ago, Harari pioneered the industry for flash-memory cards, now used by cameras, phones and other devices to store data. The company has struggled to post consistent profits, hampered by fluctuations in flash prices and a competitive market for memory. SanDisk warded off a hostile bid from Samsung Electronics Co. in 2008.

“Our business and technology leadership have never been stronger and I’m confident the company will scale new heights under Sanjay’s leadership,” Harari said in the statement.

Second-quarter net income climbed almost fivefold to $257.9 million, or $1.08 a share, from $52.5 million, or 23 cents, a year earlier. Sales advanced 61 percent.

SanDisk predicted sales of between $1.175 billion and $1.25 billion for the current period. That compares with an average estimate of $1.245 billion. The company also raised its full- year sales projection to between $4.7 billion and $4.9 billion.

“Demand indications from our customers are strong for the second half of the year,” said Chief Financial Officer Judy Bruner on a conference call. She said that the company won’t have enough supply to fill all of its orders.

Mehrotra, who co-founded the company with Harari, has been president since 2006 and chief operating officer since 2001. The 52-year-old also has worked at Intel Corp. and Atmel Corp.

To contact the reporter on this story: Ian King in San Francisco at ianking@bloomberg.net

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