Tem 21, 2008
-- Reducing Future Supply Growth and Capital Expenditures --
Milpitas, CA, July 21, 2008 - SanDisk
® Corporation (NASDAQ:SNDK), the world's largest supplier of flash storage card products, today announced results for the second quarter ended June 29, 2008, as well as steps to slow its supply growth. Total second-quarter revenue was $816 million, a decrease of 1% on a year-over-year basis. Net loss in accordance with
Generally Accepted Accounting Principles (GAAP) was ($68) million, or ($0.30) per diluted share, compared to GAAP net income of $28 million, or $0.12 per diluted share, in the second quarter of 2007.
Excluding the impact of acquisition-related charges, share-based compensation expense and the related tax effect, the second quarter non-GAAP net loss was ($22) million, or ($0.10) per diluted share, compared to the second quarter 2007 non-GAAP net income of $72 million, or $0.30 per diluted share.
SanDisk is delaying the start of the next phase of production ramp in Fab 4 and now expects it to start no sooner than April 2009. The company is also pushing out its decision to invest in Fab 5 until market conditions improve. These actions are aimed at reducing future capital expenditures and inventory growth in order to maintain a strong balance sheet.
"Our second quarter sales were well below our expectations due to the rapid deterioration in consumer confidence which impacted our sales in
retail and to handset OEMs. Product gross margin was negatively impacted by the lower sales volume and a substantial inventory write-down," said Eli Harari, Chairman and CEO. "Overall demand is expected to improve in the upcoming holiday season; however, industry-wide Flash inventories remain excessive and pricing and margins will therefore remain under pressure until supply and demand come into balance. We are taking significant actions to slow our captive supply growth, which will reduce our capital expenditure commitments, and allow us to better manage our inventory. We are also continuing to improve our cost structure through transitions to 43-nanometer MLC and the industry's first commercialized 3-bits per cell NAND flash. While the industry downturn has been more pronounced and severe than expected, we are optimistic about our long-term renewed growth when the market rebounds."
Key Metrics for Second Quarter of 2008
- Product revenue was $688 million, down 5% year-over-year.
- License and royalty revenue was $129 million, up 20% year-over-year.
- Total megabytes sold in the second quarter were a record and increased 120% year-over-year and 14% from the first quarter of 2008.
- Average price per megabyte sold declined 55% on a year-over-year basis and 15% sequentially.
- Average retail card capacity of 2.36 gigabytes increased 64% on a year-over-year basis and 15% sequentially.
- GAAP product gross margin was 3.3% compared to 16.2% in the second quarter of 2007. Non-GAAP product gross margin was 5.7% compared to 19.0% in the second quarter of 2007.
- Operating loss, on a GAAP basis, was ($101) million, or (12%) of revenue compared to GAAP operating income of $14 million, or 2% in the second quarter of 2007. Non-GAAP operating loss was ($57) million, or (7%) of revenue, compared to operating income of $74 million, or 9% of revenue, in the second quarter of 2007.
- SanDisk introduced a line of flash memory-based solid state drives (SSDs) for an emerging new category of laptops - Ultra Low-Cost PCs (ULCPC).
- SanDisk launched the first premium memory cards for mobile phones to increase capacity and provide fast transfer speeds for music, maps, videos, photos, and games.
- SanDisk and Toshiba signed a strategic agreement to jointly develop and commercialize three dimensional (3D) rewritable memory.
Chairman and Chief Executive Officer, Eli Harari, is scheduled to appear on
Closing Bell with Maria Bartiromo," on July 21, 2008 at approximately 1:20 p.m. P.D.T.
SanDisk's second quarter 2008 conference call is scheduled for 2:00 p.m. P.D.T., Monday, July 21, 2008. The conference call will be webcast by CCBN and can be accessed live, and throughout the quarter, at SanDisk's website at www.sandisk.com/IR and at www.streetevents.com for registered streetevents.com users. To participate in the call via telephone, the dial-in number is (913) 312-1402. The dial-in password is 9538040. A copy of this press release will be furnished to the Securities and Exchange Commission on a current report on Form 8-K and will be posted to our website prior to the conference call.
A complete reconciliation between GAAP and non-GAAP information referred to in this release is provided in the attached tables.
This news release contains certain forward-looking statements, including statements about our business prospects and outlook, anticipated increased demand for products, anticipated price and margin declines, the expected cost benefits of 43-nanometer and 3-bit per cell manufacturing output in the second half of 2008, our plans for Fab 4 and our potential investment in Fab 5, the anticipated emergence of new markets for Flash storage and our long-term prospects, that are based on our current expectations and involve numerous risks and uncertainties that may cause these forward-looking statements to be inaccurate and may significantly and adversely affect our business, financial condition and results of operations. Risks that may cause these forward-looking statements to be inaccurate include among others:
- slower than expected, or no, growth in market demand for our products including our solid state drives, or a slower adoption rate for our products in current and new markets that we are targeting including the mobile phone market,
- future average selling price erosion that may be more severe than our expectations due to decreased demand or excess industry supply of flash memory from ourselves as well as from existing suppliers or from new competitors,
- continued excess industry-wide supply to meet demand,
- adverse global economic and geo-political conditions, including continued declines in the global economy, particularly in the U.S. and Europe, or continued adverse currency exchange rates particularly related to the Japanese yen,
- any interruption of or delay in supply from any of the semiconductor manufacturing or subcontracting facilities, including test and assembly facilities that supply products to us,
- slower than expected expansion of our global sales channels,
- fluctuations in operating results, unexpected yield variances and delays related to our conversion to 43-nanometer NAND flash technology or the ramp-up of the 300-millimeter flash fabrication facility,
- unexpected yield variances in, or delays related to the ramp-up of, 3-bits per cell manufacturing,
- lower than expected growth in the average megabyte capacity per card,
- fluctuations in license and royalty revenues,
- higher than anticipated operating expenses,
- inability to purchase sufficient non-captive supply on favorable terms, or at all,
- lower margins due to increased use of non-captive supply,
- failure to develop commercially viable rewritable 3D memory technology in a timely and cost-effective manner,
- business interruption due to earthquakes, hurricanes or other natural disasters, particularly in areas in the Pacific Rim and Japan where we manufacture and assemble products,
- adverse results in litigation or regulatory actions affecting us, and
- other risks detailed from time-to-time under the caption "Risk Factors" and elsewhere in our Securities and Exchange Commission filings and reports, including, but not limited to, our Annual Report on Form 10-K for the fiscal year ended December 30, 2007 and our Forms 10-Q.
Future results may differ materially from those previously reported. We do not intend to update the information contained in this release.
SanDisk Corporation, the inventor and world's largest supplier of flash storage cards, is a global leader in flash memory - from research, manufacturing and product design to consumer branding and retail distribution. SanDisk's product portfolio includes flash memory cards for mobile phones, digital cameras and camcorders, digital audio/video players, USB flash drives for consumers and the enterprise, embedded memory for mobile devices, and solid state drives for computers. SanDisk (
) is a Silicon Valley-based S&P 500 company, with more than half its sales outside the United States.
SanDisk, and the SanDisk logo are trademarks of SanDisk Corporation, registered in the United States and other countries.
SanDisk Supporting Documents (.pdf)
- Preliminary Condensed Consolidated Statements of Operations
- Reconciliation of GAAP to Non-GAAP Operating Results
- Reconciliation of GAAP to Non-GAAP Operating Results
- Preliminary Condensed Consolidated Balance Sheets
- Preliminary Condensed Consolidated Statement of Cash Flows
Lori Barker Padon