Strength in the NAND flash memory chip market, and from Apple’s (AAPL) iPhone in particular, should help SanDisk (SNDK) beat expectations when it reports Q2 earnings when it reports tomorrow, according to a note today from Stifel Nicolaus analyst Patrick Ho.

Ho doesn’t formally cover SanDisk: he’s more interested in the implications for some of his coverage companies, including Teradyne (TER) and Verigy (VRGY), both of which he rates “Buy.” Those two companies make chip test equipment.

“We believe the company (and the overall NAND flash market) has seen a pickup in handset demand, as well as continued strength in many Apple-based products (including the iPhone 3G S),” writes Ho.

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SanDisk (SNDK) shares are coming under pressure this morning after Needham analyst Y. Edwin Mok cut his rating on the stock to Under Perform from Hold.

Mok writes in a research note that the downgrade reflects “early signs of weakness in the NAND flash memory sector that we believe will lead to lower prices.” He contends checks find that NAND product inventories have increased substantially, and that demand in both the retail and OEM channel has slowed since May. Heading into the second half, he writes, “we are concerned that production ramps”–Mok expects higher output from both Samsung and Toshiba–“will swing the NAND sector into oversupply.”

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Toshiba has suspended NAND flash memory production at two plants for nine days due to weak demand, according to Reuters, which picked up the story from broadcaster NHK. The wire service said the company denied plans to shut down all operations at the two factories in Yokkaichi, in western Japan, and Oita, in southern Japan. The Yokkaichi factory is a joint venture with SanDisk (SNDK).

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SanDisk (SNDK) shares are on the rise on rumors that Toshiba might be planning a bid for the company, according to Dow Jones Newswires. The two companies have a joint venture to manufacture NAND flash memories, and Toshiba has been often rumored to be a logical partner for the flash memory chipmaker.

In October, Samsung withdrew a $26-a-share bid for SanDisk; there was speculation before Samsung pulled its offer that Toshiba might serve as a white knight for SanDisk.

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In case you happen to think that Toshiba is going to outbid Samsung for SanDisk (SNDK), you ought to take note of the company’s currently grim view of the NAND flash memory market.

In fact, as Bloomberg reports, Toshiba today cut its full-year net income forecast for the March 31, 2009, fiscal year by 46 percent to 70 billion yen, which would be a four-year low. The company also cut its sales projection by 3.8 percent to 7.7 trillion yen, and its operating profit forecast by 48 percent to 105 billion yen.

Toshiba is the world’s second-largest producer of NAND flash memory chips. The company said its semiconductor division will lose 65 billion yen for the year due to weak NAND pricing.

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