[Pixalo]

SanDisk Corp., a maker of flash memory for cell phones and digital cameras, reported a quarterly loss on Thursday as prices for its main products fell, sending its shares down more than 6 percent.

The first-quarter net loss of $575,000 compared with year-earlier net income of $35.1 million, or 17 cents per share. Revenue rose 26 percent to $786 million.

Excluding the impact of acquisition-related charges, first- quarter income was 19 cents a share, compared with 44 cents a share in the quarter last year.

Analysts, on average, had been expecting earnings of 18 cents a share before special items on revenue of $759.8 million, according to Reuters Estimates.

"2007 is a tough year, there's no denying that," SanDisk Chief Executive Eli Harari said on a conference call.

First-quarter results were hurt by competitors who drastically cut component prices, Harari said.

"Our industry experienced excess supply, sharp price declines and depressed margins," he said in a prepared statement.

Weak retail consumer demand exacerbated those conditions, he said.

SanDisk forecast a pickup in demand during the second half of the second quarter, but said excess supply and depressed pricing might continue through the quarter and the summer.

That would put pressure on margins.

"Our outlook is optimistic for renewed growth heading into the fourth quarter of 2007 and forward to 2008," Harari said.

"CORRECT STRATEGY"

New products that use its flash memory chips, including Apple Inc.'s iPhone communications and entertainment smart phone and portable media players, are expected to ignite demand for its products next year.

Harari said that outlook was based on building the company's multimedia handset business and "exceptionally attractive price points" for some of its consumer products.

During the quarter, the mobile market became the company's largest revenue generator, Harari said.

Another highlight was signing a licensing agreement with Hynix Semiconductor Inc. and a deal with Dell Inc. to sell notebook computers that use SanDisk's 32- gigabyte solid-state drive.

In February, the company announced plans to cut 10 percent of its workforce and reduce executive salaries to compensate for a collapse in prices for flash memory chips.

"We are keenly aware of our shareholders concerns for the short term," Harari said on the conference call. "However, we believe we were executing the correct strategy for achieving SanDisk's long term strategic goals in the market."

The company said it expected product revenue in the second quarter to be in the $625 million to $725 million range and royalty revenue to be $95 million to $100 million.

The second quarter outlook reflects a growth in unit sales, but will be offset by a continued decline in the company's "white-label" USB business, which produces devices that are sold under different brand names.

It also includes the elimination of a joint venture with Toshiba Corp.

For the full year, SanDisk expects its gross margin to be 15 percent to 20 percent on a non-GAAP basis.

SanDisk shares fell to $42.88 in after-hours electronic trading after closing up 2.89 percent at $45.20 on the Nasdaq.