Sandisk jumped $3.53 (12.11%) to a new 52 week closing high of $32.68 after hitting a 52 week high of $32.75 intra-day. The jump was sparked by upgraded revenue and margin guidance, followed by a bevy of analysts upping their estimates.

I’m not one for conspiracies, but it’s very difficult to take Sandisk’s low ball guidance during their earnings release on January 28th and Friday’s raised guidance at face value. Sandisk had a great fourth quarter and blew estimates away. However, due to low ball guidance the stock was heavily sold off the next day. Four weeks later Sandisk ups guidance and the stock takes off.

I find it hard to believe management did not know how the quarter was progressing four weeks ago. It would make a great story if employee options were granted during those four weeks, but their grant date is mid year. There were no insider transactions during the period. So what was Eli and Co thinking?

Guidance from Q4 2009 reported 28th January via Seeking Alpha.

“… forecasting total revenue for Q1 between 875 million, and 950 million which includes license and royalty revenue between $80 million and $90 million. Fully reflecting the new Samsung license agreement. For the full year 2010, we forecast total revenue between 4.0 billion and 4.4 billion, including license and royalty revenue between 320 million and 360 million.

Turning to gross margin, we expect that first quarter cost decline may be a bit less than price decline as we expect more modest costs decline in Q1 than we generated in the previous two consecutive quarters of very strong cost reductions. For the full year 2010 we expect that the annual cost decline which Eli estimated at 30% to 40% will be greater than the annual price decline allowing product gross margin to expand from our 2009 underlying product gross margins which is on the teens on a full year basis.

We are forecasting a non-GAAP product gross margin for Q1 and for the full year of approximately 31%, plus or minus 3 percentage points. We forecast non-GAAP operating expenses in Q1 of 175 million to 185 million, and for 2010, of 725 million to 750 million. We forecast non-GAAP other income for 2010 to be approximately $40 million spread relatively evenly across the year. We forecast a non-GAAP tax-rate of approximately 37%, up from 36% in 2009, based primarily on certain tax law changes for 2010.”

From the 2010 Investor Day Meeting.

• forecast first-quarter revenue of $925 million to $1 billion
• non-GAAP gross margin outlook to 34 percent, plus or minus 2 percentage points

There is huge growth in demand coming from mobile internet and Eli believes that is the key driver for the next decade. I see the key driver for Sandisk’s profitability as supply and demand. If you look back at 2008 the growth in demand didn’t matter as supply outstripped and prices feel hard.

Analysts estimates still look conservative to me. Most notable is the rising estimates which research has shown to be a key indicator of future returns.

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