On January 21st, SanDisk announced its 2015 revenue guidance, which fell $600 million below what analysts were expecting. Not only that, but the company revealed that earlier this month it lost one of its largest customers, which is believed to be Apple. Despite the convergence of two massively negative announcements, on the day following earnings the stock managed to close down only 1.9%. So what the heck is going on? It’s simple: SanDisk is a cult stock. The company, its investor base and the Wall Street analysts that cover it are an extremely protective bunch. They will defend the company at all costs. But unfortunately for them, the environment has changed. The tailwinds that drove SanDisk’s terrific run over the past two years have come to a screeching halt. The pre-announcement exposed gross margin risk. The weak 2015 guidance introduced a new, more daunting, factor: market share loss. Finally, the last shoe to drop appears to be a growing oversupply in the NAND market. Here’s the bottom line: SanDisk is no longer the dominant player in its space. Competitive pressures are only intensifying, and weakened margins and sales are the new norm. The company and its bandwagon can dismiss these concerns all they want, but the stock will ultimately be judged by results, not promises.
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