Shares of SanDisk, whose chips are used in mobile devices, rose 8 percent to $37.77 in extended trading.

SanDisk said Thursday it earned $13 million, or 5 cents a share, in the second quarter ended June 30, down from $248 million, or $1.02 per share, in the year-ago period.

However, excluding items, it earned 21 cents a share as revenue fell 25 percent to $1.03 billion.

Analysts on average were looking for a profit of 18 cents a share on $1.02 billion in revenue, according to Thomson Reuters I/B/E/S.

SanDisk's gross margin of 28.3 percent exceeded its projected range of 26 to 27 percent, but was down from 34.5 percent in the first quarter.

"The fear was that there margins will be much worse than what they reported due to the falling NAND prices," Susquehanna analyst Mehdi Hosseini said.

SanDisk makes NAND chips which are used in smartphones, cameras and tablets to store data such as movies and photos. Like many commodities their prices fluctuate widely in response to supply and demand, hitting margins.

"We believe that strengthening industry fundamentals and our expanding portfolio of solutions will contribute to improving financial results in the second half of 2012," Chief Executive Sanjay Mehrotra said.

It had warned in April that a glut in the NAND flash market was hurting prices. On Thursday, the company said demand from business customers and international markets is recovering.

"In my view NAND price declines moderate going from here. We saw a very steep decline, but that will slow down in second half," Pacific Crest analyst Monika Garg said.

NAND prices have fallen as much as 60 percent in the last year, according to chip industry tracker DRAMeXchange. Analysts tracking SanDisk and the NAND market estimate a 35-40 percent drop in NAND prices this year alone.