SanDisk Reports Record Quarter with Revenues Up 45% and EPS Up 90%
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SanDisk Reports Record Quarter with Revenues Up 45% and EPS Up 90%

SUNNYVALE, Calif.—(BUSINESS WIRE)—Oct. 20, 2005— SanDisk Corporation (Nasdaq: SNDK):

-- EPS $0.55, up 90%; Revenues $590 million, up 45%

-- Product Gross Margin 37% on strong demand, benign pricing and lower product costs

-- Operating Profit of $159 million, 27% of revenue

-- On track production ramps of 70 nm 8 Gigabit chip and new 300 millimeter NAND fab

-- Cash increased $204 million

SanDisk(R) Corporation (Nasdaq: SNDK), the world's largest supplier of flash storage card products, today announced results for the third quarter ended October 2, 2005. Third quarter revenues increased 45% on a year-over-year basis to a record $590 million and increased 15% compared to the second quarter of 2005. Third quarter net income was $107.5 million compared to $54.1 million in the third quarter of 2004 and $70.5 million in the second quarter of 2005. Fully diluted earnings per share was $0.55, up 90% on a year-over-year basis and up 49% compared to the second quarter of 2005.

"We are very pleased with the outstanding results for our third quarter. Demand was strong throughout the quarter in our served markets. We are particularly encouraged by the excellent adoption of our cards in music-enabled mobile phones that require high capacity cards," said Eli Harari, SanDisk CEO. "Demand for NAND flash continues to grow globally and is currently outstripping industry-wide supply, particularly for high density NAND. Towards the end of the quarter we began first shipments of cards employing our cost effective 70-nanometer 8 gigabit NAND/MLC chip. Together with Toshiba we are accelerating the production ramp at Flash Partners' 300 millimeter fab to meet the anticipated strong demand for NAND flash in the fourth quarter and in 2006. We are optimistic about our business in the traditionally strong fourth quarter."

Financial Highlights

-- Product revenue was a record $530 million in the third quarter, up 45% year-over-year and 17% sequentially.

-- Revenue from license and royalties was $60 million, up 40% year-over-year and down 2% sequentially.

-- Megabytes sold in the third quarter were a record and increased 213% year-over-year and 23% from the second quarter of 2005.

-- Average density per card sold in retail was 514 megabytes, doubling from the third quarter of 2004 and up 4% sequentially.

-- Average price per megabyte sold declined 5% sequentially and 54% from the third quarter of 2004.

-- Total gross margin was 44% of revenues compared to 36% in the third quarter of 2004 and 42% in the second quarter of 2005.

-- Product gross margin was 37% compared to 29% in the third quarter of 2004 and 34% in the second quarter of 2005.

-- Operating income was a record $159 million and 27% of revenue compared to $84 million and 21% of revenue in the third quarter of 2004 and $106 million and 21% of revenue in the second quarter of 2005.

-- Net income was $107 million compared to $54 million in the third quarter of 2004 and $70 million in the second quarter of 2005.

-- Cash flow from operations was $209 million compared to $131 million in the third quarter of 2004 and total cash and short-term investments increased $204 million in the third quarter to $1.66 billion.

Product Introductions

-- SanDisk introduced its third generation card technology, TrustedFlash(TM). These cards provide security and digital rights management for content providers and enable consumers to move valuable stored content among multiple devices.

-- SanDisk introduced iNAND(TM) embeddable components. Compared to mobile device micro hard drives, iNAND is smaller, requires less power consumption and is more durable.

-- SanDisk Extreme(TM) III and SanDisk Ultra II(R) took top awards in independent performance tests and were among our fastest growing products.

-- SanDisk introduced the m200 MP3 players in capacities ranging from 512 megabyte to 4 gigabyte and the new players support various music subscription services.

-- SanDisk launched Cruzer(R) Freedom, a new USB flash drive that lets students carry secure internet downloads of textbooks and other copyrighted content.

Recent Events

-- In early October Dr. Randhir Thakur joined SanDisk as Executive Vice President of Technology and Worldwide Operations.

-- On October 20th SanDisk signed a definitive agreement for the acquisition of Matrix(R). Matrix Semiconductor, Inc. is a privately held semiconductor company specializing in 3-D one-time programmable/archiving memory -- see separate press announcement and third quarter conference call for further details.

Scheduled Interviews

SanDisk Corporation President and Chief Executive Officer, Eli Harari, is scheduled to appear on CNBC's "Closing Bell with Maria Bartiromo", October 20, 2005 at approximately 1:15 p.m. PDT. Judy Bruner, SanDisk's Executive Vice President, Administration and CFO is scheduled to appear on Bloomberg TV's "Morning Call", October 21, 2005 at approximately 4:40 a.m. PDT.

Conference Call

SanDisk's third quarter 2005 conference call is scheduled for 2:00 p.m. PDT, Thursday, October 20, 2005. The conference call will be web cast 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) 312-1293. The call will also be available by telephone replay through Monday, October 24, 2005, by dialing (719) 457-0820 and entering the pass code 7280104. A copy of this press release will be filed with 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.

Forward-Looking Statements

This news release contains certain forward-looking statements, including statements about our business outlook in the fourth quarter of 2005 and 2006, production schedules, market growth rates, market supply and demand, and scheduled appearances by our CEO and CFO 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 growth in market demand for our products or a slower adoption rate for these products in current and new markets that we are targeting, 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, the fact that no security technology can be guaranteed to be 100% secure, slower than expected expansion of our global sales channels, fluctuations in operating results, unexpected yield variances and longer than expected low yields and other possible delays related to our conversion to 70-nanometer NAND flash technology or the ramp-up of the new 300-millimeter flash fabrication facility, unexpected delays in the ramp-up of volume production of our new 70-nanometer 8 gigabit NAND/MLC chip, our inability to make additional planned smaller geometry conversions in a timely manner, future average selling price erosion that may be more severe than our expectations due to decreased demand or possible excess industry capacity of flash memory from ourselves as well as from existing suppliers or from new competitors that are planning to aggressively increase supply in the fourth quarter of 2005 or 2006, price increases from non-captive flash memory sources and third-party subcontractors, higher than expected operating expenses, higher than anticipated capital equipment expenditures, adverse global economic and geo-political conditions, including adverse currency exchange rates and acts of terror, the timely development, internal qualification and customer acceptance of new products that are based on 70-nanometer NAND technology, fluctuations in license and royalty revenues, business interruption due to earthquakes, hurricanes, pandemics or other natural disasters, particularly in areas in the Pacific Rim and Japan where we manufacture and assemble products, potential impact of high energy prices and other global events outside of our control which could adversely impact consumer confidence and hence reduce demand for our products, scheduled appearances by our executives could be cancelled or delayed by us or the network, and the other risks detailed from time-to-time in our Securities and Exchange Commission filings and reports, including, but not limited to, the Form 10-K for the year ended January 2, 2005 and our quarterly reports on Form 10-Q. Future results may differ materially from those previously reported. We do not intend to update the information contained in this release.

About SanDisk

SanDisk is the original inventor of flash storage cards and is the world's largest supplier of flash data storage card products using its patented, high-density flash memory and controller technology. SanDisk is headquartered in Sunnyvale, CA and has operations worldwide, with more than half its sales outside the U.S.

www.sandisk.com

SanDisk and SanDisk Ultra, are trademarks of SanDisk Corporation, registered in the United States and other countries. Trusted Flash, Cruzer, SanDisk Extreme and iNAND are trademarks of SanDisk Corporation. Matrix is a registered trademark of Matrix Semiconductor, Inc.

                          SanDisk Corporation
              Condensed Consolidated Statements of Income
           (In thousands, except per share data, unaudited)



                           Three Months Ended    Year to Date Ended
                           ------------------- -----------------------
                            Oct. 2,  Sept. 26,   Oct. 2,     Sept. 26,
                             2005      2004       2005         2004
                           --------- --------- ----------- -----------
Revenues:
  Product                  $529,735  $365,033  $1,383,176  $1,095,139
  License and royalty        59,896    42,921     172,326     133,033
                           --------- --------- ----------- -----------
Total revenue               589,631   407,954   1,555,502   1,228,172

Cost of product revenues    332,847   260,573     884,832     746,220
                           --------- --------- ----------- -----------
Gross profits               256,784   147,381     670,670     481,952

Operating expenses:
  Research and development   43,420    30,184     150,771      89,414
  Sales and marketing        31,610    20,863      83,241      65,466
  General and
   administrative            23,186    12,651      58,527      34,499
                           --------- --------- ----------- -----------
Total operating expenses     98,216    63,698     292,539     189,379

Operating income            158,568    83,683     378,131     292,573

Total other income
 (expense)                   11,999     1,914      22,614       6,285
                           --------- --------- ----------- -----------

Income before taxes         170,567    85,597     400,745     298,858

Provision for income taxes   63,109    31,495     148,275     110,577
                           --------- --------- ----------- -----------
Net income                 $107,458   $54,102    $252,470    $188,281
                           ========= ========= =========== ===========

Net income per share
 calculation:
Net income used in
 computing basic net
 income per share          $107,458   $54,102    $252,470    $188,281
Tax-effected interest and
 bond amortization costs
 related to convertible
 subordinated notes               0     1,202           0       3,612
                           --------- --------- ----------- -----------
Net income used in
 computing diluted net
 income per share          $107,458   $55,304    $252,470    $191,893
                           ========= ========= =========== ===========

Shares used in computing
 net income per share
      Basic                 183,047   162,425     181,716     161,796
      Diluted               194,212   188,562     191,489     188,903

Net income per share
     Basic                    $0.59     $0.33       $1.39       $1.16
     Diluted                  $0.55     $0.29       $1.32       $1.02




                          SanDisk Corporation
                 Condensed Consolidated Balance Sheets
                            (In thousands)



                               October 2,    July 3,      January 2,
                                 2005         2005         2005(1)
           ASSETS             (unaudited)  (unaudited)
                             ------------ ------------  ------------

Current Assets:
   Cash and cash equivalents   $764,612     $581,089       $463,795
   Short-term investments       890,938      870,531        859,175
   Investment in foundries       19,410       19,569         20,398
   Accounts receivable, net     211,219      242,498        194,535
   Inventories                  286,878      229,593        196,422
   Deferred tax asset            77,250       91,744         83,150
   Other current assets          37,022       80,439         62,653
                             ------------ -----------   ------------
   Total current assets       2,287,329    2,115,463      1,880,128

   Property and equipment,
    net                         179,822      177,341        147,231
   Investment in foundries        8,611        7,900         14,377
   Investment in FlashVision    166,041      168,349        178,681
   Investment in
    FlashPartners                21,461       21,927         24,192
   Deferred tax asset            16,275        9,265          1,861
   Notes receivable, 
    FlashVision                  64,442       53,277         35,413
   Other non-current assets      35,543       33,139         38,297
                             ------------ -----------   ------------

          Total Assets       $2,779,524   $2,586,661     $2,320,180
                             ============ ===========   ============

   LIABILITIES AND
    STOCKHOLDERS' EQUITY:

Current Liabilities:

   Accounts payable            $146,317     $113,105        $82,974
   Accounts payable to
    related parties              71,160       63,311         48,115
   Accrued payroll and
    related expenses             46,230       32,390         41,785
   Income taxes payable          17,382       28,406         39,139
   Research and development
    liability, related party      5,000        6,300          5,549
   Other current accrued
    liabilities                  44,336       41,356         45,584
   Deferred income on
    shipments to distributors
    and retailers and
    deferred revenue            170,634      176,532         90,307
                             ------------ -----------   ------------
   Total current liabilities    501,059      461,400        353,453

   Deferred revenue and
    non-current liabilities      19,662       22,232         26,577
                             ------------ -----------   ------------
   Total Liabilities            520,721      483,632        380,030

   Commitments and
    contingencies

Stockholders' Equity:
   Common stock               1,484,927    1,431,640      1,406,553
   Retained earnings            772,710      665,252        520,240
   Accumulated other
    comprehensive income          8,921       11,056         18,893
   Deferred compensation         (7,755)      (4,919)        (5,536)
                             ------------ -----------   ------------
   Total stockholders'
    equity                    2,258,803    2,103,029      1,940,150
                             ------------ -----------   ------------

         Total Liabilities
          and Stockholders'
          Equity             $2,779,524   $2,586,661     $2,320,180
                             ============ ===========   ============

(1) Information derived from the audited Consolidated Financial
    Statements.




                          SanDisk Corporation
      Condensed Consolidated Comparative Statement of Cash Flows
                            September 2005
                       (in thousands, unaudited)


                               Three months ended   Nine months ended
                               ------------------- -------------------
                                Oct. 2,  Sept. 26,  Oct. 2,  Sept. 26,
                                 2005      2004      2005      2004
                               --------- --------- --------- ---------
Cash flows from operating
 activities:
Net income                     $107,458   $54,102  $252,470  $188,281
Adjustments to reconcile net
 income to net cash provided
 by operating activities:
 Deferred taxes                    (182)    7,065      (194)    7,582
 Loss (gain) investment in
  foundries                        (501)      399     8,752       950
 Depreciation and amortization   17,518     9,808    46,906    26,410
 Provision for doubtful
  accounts                           52       572      (111)    2,842
 FlashVision wafer cost
  adjustment                      6,228      (321)    4,056      (962)
 Other non-cash charges           1,463     1,970     7,003     2,931
 Changes in operating assets
  and liabilities:
    Accounts receivable          31,227    62,089   (16,573)   45,238
    Inventories                 (57,285)  (17,842)  (90,456)  (64,433)
    Other current assets         46,339    33,538    34,164    31,431
    Other non-current assets      1,639    (2,635)   (1,427)    1,724
    Accounts payable             31,211    35,119    61,342    25,212
    Accrued payroll and
     related expenses            13,840     1,508     4,445     1,793
    Income taxes
     receivable/payable          14,205   (27,434)    1,387   (55,580)
    Accounts payable, related
     party                          408       155    16,355     8,325
    Other current accrued
     liabilities                  2,981       376    (1,240)      587
    Deferred income on
     shipments and deferred
     revenue                     (7,503)  (27,667)   75,514    (7,901)
    Other non-current
     liabilities                   (591)      124      (409)      900
                               --------- --------- --------- ---------
       Total adjustments        101,049    76,824   149,514    27,049
                               --------- --------- --------- ---------
Net cash provided by operating
 activities                     208,507   130,926   401,984   215,330
                               --------- --------- --------- ---------
Cash flows from investing
 activities:
    Purchases of short term
     investments               (195,700) (278,244) (491,282) (922,651)
    Proceeds from sale of
     short term investments     174,150   216,327   455,758   698,397
    Investment in Flash Vision        0       (70)        0       (70)
    Acquisition of capital
     equipment, net             (23,779)  (78,121)  (80,500) (107,939)
    Notes receivable from
     FlashVision                (12,027)  (11,927)  (34,249)  (33,564)
                               --------- --------- --------- ---------
Net cash used in investing
 activities                     (57,356) (152,035) (150,273) (365,827)
                               --------- --------- --------- ---------
Cash from Financing activities
    Employee stock programs      32,390     9,327    48,243    18,200
                               --------- --------- --------- ---------
 Net cash provided by
  financing activities           32,390     9,327    48,243    18,200
                               --------- --------- --------- ---------
 Effect of changes in foreign
  currency exchange rates on
  cash                              (18)        0       863         0
 Net increase (decrease) in
  cash and cash equivalents     183,523   (11,782)  300,817  (132,297)
 Cash and cash equivalents
  at beginning of period        581,089   613,964   463,795   734,479
                               --------- --------- --------- ---------
 Cash and cash equivalents
  at end of period             $764,612  $602,182  $764,612  $602,182
                               ========= ========= ========= =========





Contact:
SanDisk Corporation
Lori Barker Padon, 408-542-0585 (Investor)
Mike Wong, 408-548-0223 (Media)