SanDisk Reports Second Quarter 2006 Results
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SanDisk Reports Second Quarter 2006 Results

SUNNYVALE, Calif.—(BUSINESS WIRE)—July 24, 2006— SanDisk Corporation (NASDAQ: SNDK):

-- Revenues of $719 million, up 40% year-over-year

-- GAAP EPS $0.47; Non-GAAP EPS $0.58

SanDisk(R) Corporation (NASDAQ: SNDK), the world's largest supplier of flash storage card products, today announced results for the second quarter ended July 2, 2006. Total second quarter revenues increased 40% on a year-over-year basis to $719 million. Second quarter net income as reported in accordance with U.S. Generally Accepted Accounting Principles (GAAP) was $96 million, or $0.47 per diluted share.

Excluding the impact of stock compensation expense and amortization of acquisition related intangible assets and the related tax effect, second quarter non-GAAP net income grew 67% to $118 million, or $0.58 per diluted share, which compares to the second quarter 2005 GAAP results of $70 million, or $0.37 per diluted share.

"The second quarter was an excellent quarter for both our OEM and our retail business. Mobile cards sold into handsets were the star performer with more than 15 million cards sold in the quarter. Our microSD(TM) card has become our number one product in units and our second largest product by revenue. Our Sansa(TM) e200 audio players have been well received, solidifying our clear #2 share for flash players in U.S. retail in the second quarter. Our SanDisk Extreme(TM) high performance cards for professional photographers were our fastest growing product line in the quarter. Solid execution of the 300-millimeter fab ramp and 8 gigabit 70-nanometer MLC shipments contributed to improved product margins despite a challenging industry-wide pricing environment. The cumulative pricing reductions implemented over the past two quarters are showing positive demand elasticity as evidenced by 20% growth in average capacity and 46% more megabytes sold compared to the first quarter," said Eli Harari, chairman and chief executive officer of SanDisk Corporation. "We are optimistic about growth in demand in our target markets in the second half and with Fab 3 costs steadily declining and our captive capacity ramping, we believe we are well positioned for the anticipated demand upswing in the back half of this year."

Metrics and Highlights

-- Product revenues grew 40% and license and royalty revenue grew 35% year-over-year.

-- Megabytes sold in the second quarter increased 178% year-over-year and 46% from the first quarter of 2006.

-- Average density per card sold in retail grew 15% sequentially to 758 megabytes. Average density per card sold across all channels grew 20% sequentially.

-- Average price per megabyte sold declined 19% sequentially and 49% from the second quarter of 2005.

-- Total GAAP gross margin was 40% of revenues compared to 42% in the second quarter of 2005 and 38% in the first quarter of 2006.

-- GAAP product gross margin for the second quarter of 2006 was 32% of revenues compared to 34% in the second quarter of 2005 and 28% in the first quarter of 2006.

-- GAAP operating income for the second quarter of 2006 was $129 million or 18% of revenues. Non-GAAP operating income was $159 million or 22% of revenue compared to $106 million or 21% of revenue in the second quarter of 2005.

-- Cash flow from operations was $59 million, and total cash and investments increased sequentially by $933 million to $2.7 billion.

-- SanDisk sold $1.15 billion aggregate principal amount of Convertible Senior Notes due in 2013.

-- SanDisk introduced high capacity new products including the 4 gigabyte (GB) SD High Capacity card and the 4GB Memory Stick PRO Duo(TM) game card.

-- Retail presence grew to more than 187,000 storefronts including 54,000 in the mobile channel.

-- SanDisk and Toshiba signed a definitive agreement to build a new 300-millimeter NAND wafer fabrication facility in Yokkaichi, Japan with initial production expected to begin in the fourth quarter of 2007.

Scheduled Interviews

SanDisk Corporation Chairman and Chief Executive Officer, Eli Harari, is scheduled to appear on CNBC's "Closing Bell with Maria Bartiromo," on July 24, 2006 at approximately 1:10 p.m. PDT. Judy Bruner, SanDisk's Executive Vice President, Administration and CFO is scheduled to appear on Bloomberg Radio's "Bloomberg Radio Report," July 25, 2006 at approximately 3:20 a.m. PDT.

Conference Call

SanDisk's second quarter 2006 conference call is scheduled for 2:00 p.m. PDT, Monday, July 24, 2006. 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) 981-4901. 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 prospects and outlook for the second half of 2006, including anticipated increased demand for our products, market supply and demand, expected captive manufacturing cost reductions 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, slower than expected expansion of our global sales channels, fluctuations in operating results, unexpected yield variances related to our conversion to 70-nanometer NAND flash technology or the ramp-up of the 300mm flash fabrication facility, 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, less than expected growth in the average megabyte capacity per card, 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 and war, 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, power outages 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 under the caption "Risk Factors" and elsewhere in our Securities and Exchange Commission filings and reports, including, but not limited to, our Form 10-K for the fiscal year ended January 1, 2006 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 Milpitas, CA and has operations worldwide with more than half its sales outside the U.S.

www.sandisk.com

SanDisk and SanDisk Extreme are trademarks of SanDisk Corporation, registered in the United States and other countries. Memory Stick PRO is a trademark of Sony Corporation.
                         SanDisk Corporation
             Condensed Consolidated Statements of Income
           (In thousands, except per share data, unaudited)

                           Three months ended      Six months ended
                          --------------------- ----------------------
                           July 2,    July 3,     July 2,    July 3,
                             2006       2005       2006        2005
                          ---------- ---------- ----------- ----------
Revenues:
   Product                $ 636,675  $ 453,762  $1,174,403  $ 853,441
   License and royalty       82,510     61,134     168,042    112,430
                           ---------  ---------  ----------  ---------
Total revenue               719,185    514,896   1,342,445    965,871

Cost of product revenues    430,177    300,797     815,044    551,985
                           ---------  ---------  ----------  ---------
Gross profits               289,008    214,099     527,401    413,886

Operating expenses:
  Research and development   73,785     61,404     137,547    107,351
  Sales and marketing        45,067     27,034      88,442     51,631
  General and
   administrative            37,182     19,617      67,198     35,341
  Write-off of acquired
   in-process technology          -          -      39,600          -
  Amortization of
   acquisition related
   intangible assets          4,432          -       8,147          -
                           ---------  ---------  ----------  ---------
Total operating expenses    160,466    108,055     340,934    194,323
                           ---------  ---------  ----------  ---------

Operating income            128,542    106,044     186,467    219,563

Total other income           22,013      5,854      40,477     10,615
                           ---------  ---------  ----------  ---------

Income before taxes         150,555    111,898     226,944    230,178

Provision for income taxes   54,914     41,402      96,188     85,166
                           ---------  ---------  ----------  ---------
Net income                $  95,641  $  70,496  $  130,756  $ 145,012
                           =========  =========  ==========  =========

Shares used in computing
 net income per share
      Basic                 195,527    181,469     194,302    181,050
      Diluted               202,980    190,256     202,522    190,127

Net income per share
      Basic               $    0.49  $    0.39  $     0.67  $    0.80
      Diluted             $    0.47  $    0.37  $     0.65  $    0.76


                         SanDisk Corporation
       Reconciliation of GAAP to Non-GAAP Operating Results (1)
           (In thousands, except per share data, unaudited)

                               Three months ended   Six months ended
                               ------------------- -------------------
                                July 2,   July 3,   July 2,   July 3,
                                 2006      2005      2006      2005
                               --------- --------- --------- ---------

GAAP gross profit              $289,008  $214,099  $527,401  $413,886
  Equity-based compensation (a)   2,478         -     2,478         -
                                --------  --------  --------  --------
Non-GAAP gross profit          $291,486  $214,099  $529,879  $413,886
                                ========  ========  ========  ========

GAAP total operating expenses  $160,466  $108,055  $340,934  $194,323
  Equity-based compensation (a) (23,392)        -   (42,178)        -
  Write-off of acquired in-
   process technology (b)             -         -   (39,600)        -
  Amortization of acquisition-
   related intangible assets
   (c)                           (4,432)        -    (8,147)        -
                                --------  --------  --------  --------
Non-GAAP total operating
 expenses                      $132,642  $108,055  $251,009  $194,323
                                ========  ========  ========  ========

GAAP operating income          $128,542  $106,044  $186,467  $219,563
  Cost of goods sold
   adjustments (a)                2,478         -     2,478         -
  Operating expense adjustments
   (a-c)                         27,824         -    89,925         -
                                --------  --------  --------  --------
Non-GAAP operating income      $158,844  $106,044  $278,870  $219,563
                                ========  ========  ========  ========

GAAP net income                $ 95,641  $ 70,496  $130,756  $145,012
  Cost of goods sold
   adjustments (a)                2,478         -     2,478         -
  Operating expense adjustments
   (a-c)                         27,824         -    89,925         -
  Income tax adjustments (d)     (8,385)        -   (15,583)        -
                                --------  --------  --------  --------
Non-GAAP net income            $117,558  $ 70,496  $207,576  $145,012
                                ========  ========  ========  ========

Basic net income per share:
  GAAP                         $   0.49  $   0.39  $   0.67  $   0.80
  Non-GAAP                     $   0.60  $   0.39  $   1.07  $   0.80

Diluted net income per share:
  GAAP                         $   0.47  $   0.37  $   0.65  $   0.76
  Non-GAAP                     $   0.58  $   0.37  $   1.02  $   0.76

Shares used in computing basic
 net income per share:
  GAAP                          195,527   181,469   194,302   181,050
  Non-GAAP                      195,527   181,469   194,302   181,050

Shares used in computing
 diluted net income per share:
  GAAP                          202,980   190,256   202,522   190,127
  Non-GAAP                      204,126   190,256   203,716   190,127

(1) To supplement our consolidated financial statements presented in
 accordance with generally accepted accounting principles (GAAP), we
 use non-GAAP measures of operating results, net income and earnings
 per share, which are adjusted from results based on GAAP to exclude
 certain expenses, gains and losses. These non-GAAP financial
 measures are provided to enhance the user's overall understanding
 of our current financial performance and our prospects for the
 future. Specifically, we believe the non-GAAP results provide
 useful information to both management, and investors as these non-
 GAAP results exclude certain expenses, gains and losses that we
 believe are not indicative of our core operating results and
 because it is consistent with the financial models and estimates
 published by many analysts who follow the Company. For example,
 because the non-GAAP results exclude the expenses we recorded for
 stock compensation in accordance with SFAS 123R effective January
 2, 2006 and the acquisition of Matrix Semiconductor, Inc. in
 January 2006, we believe the inclusion of non-GAAP financial
 measures provide consistency in our financial reporting. These non-
 GAAP results are one of the primary indicators management uses for
 assessing our performance, allocating resources and planning and
 forecasting future periods. Further, management uses non-GAAP
 information as certain non-cash charges such as amortization of
 purchased intangibles and stock based compensation do not reflect
 the cash operating results of the business and certain one-time
 expenses such as write-off of acquired in-process technology that
 do not reflect the ongoing results. These measures should be
 considered in addition to results prepared in accordance with GAAP,
 but should not be considered a substitute for or superior to GAAP
 results. These non-GAAP measures may be different than the non-GAAP
 measures used by other companies.

(a) Equity based compensation expense.
(b) Write-off of acquired in-process technology associated with the
    Matrix acquisition (January 2006).
(c) Amortization of acquisition-related intangible assets, primarily
    core and developed technology, related to the acquisition of
    Matrix.
(d) Income taxes associated with certain non-GAAP adjustments.

                         SanDisk Corporation
                Condensed Consolidated Balance Sheets
                            (In thousands)


                                       July 2, 2006 January 1, 2006(1)
                ASSETS                 (unaudited)
                                      ------------- ------------------

Current Assets:
 Cash and cash equivalents            $  1,318,479        $   762,058
 Short-term investments                    960,995            935,639
 Investment in foundries                    18,990             18,338
 Accounts receivable, net                  311,921            329,014
 Inventories                               378,196            331,584
 Deferred taxes                            107,283             95,518
 Other current assets                      121,164            103,584
                                       ------------        -----------
 Total current assets                    3,217,028          2,575,735

 Long-term investments                     405,714                  -
 Property and equipment, net               254,695            211,092
 Notes receivable, FlashVision              63,750             61,927
 Notes receivable, Flash Partners           96,061                  -
 Investment in foundries                    16,364             11,013
 Investment in FlashVision                 164,888            161,080
 Investment in Flash Partners              174,325             42,067
 Deferred taxes                            143,630                  -
 Goodwill                                  167,248              5,415
 Intangible, net                            97,232              4,608
 Deposits and other non-current assets      39,674             47,250
                                       ------------        -----------

        Total Assets                  $  4,840,609        $ 3,120,187
                                       ============        ===========

 LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
 Accounts payable                     $    110,864        $   231,208
 Accounts payable to related parties        86,153             74,121
 Accrued payroll and related expenses       45,035             55,614
 Income taxes payable                       12,994              2,165
 Research and development liability,
  related party                              5,984              4,200
 Other current accrued liabilities          75,934             53,546
 Deferred income on shipments to
  distributors and retailers and
  deferred revenue                         143,678            150,283
                                       ------------        -----------
 Total current liabilities                 480,642            571,137

 Convertible senior notes                1,150,000                  -
 Deferred revenue and non-current
  liabilities                               40,850             25,259
                                       ------------        -----------
 Total Liabilities                       1,671,492            596,396

 Commitments and contingencies

Stockholders' Equity:
 Common stock                            2,120,763          1,622,007
 Retained earnings                       1,037,380            906,624
 Accumulated other comprehensive
  income                                    10,974              2,635
 Deferred compensation                           -             (7,475)
                                       ------------        -----------
 Total stockholders' equity              3,169,117          2,523,791
                                       ------------        -----------

         Total Liabilities and
          Stockholders' Equity        $  4,840,609        $ 3,120,187
                                       ============        ===========

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

                         SanDisk Corporation
     Condensed Consolidated Comparative Statement of Cash Flows
                      (In thousands, unaudited)

                           Three months ended      Six months ended
                         ---------------------- ----------------------
                           July 2,    July 3,     July 2,    July 3,
                            2006        2005       2006        2005
                         ----------- ---------- ----------- ----------
 Cash flows from
  operating activities:
 Net income              $   95,641  $  70,496  $  130,756  $ 145,012
 Adjustments to reconcile
  net income to net cash
  provided by operating
  activities:
 Deferred taxes              (3,939)       (12)    (17,395)     1,076
 Loss (gain) on
  investments                  (602)     5,224      (1,195)     9,253
 Depreciation and
  amortization               31,269     14,951      57,666     29,413
 Provision for doubtful
  accounts                    1,527       (163)      1,001       (163)
 Deferred stock-based
  compensation               25,903        550      44,688      1,069
 Write-off of acquired
  in-process technology           -          -      39,600          -
 Other non-cash charges      (3,536)     3,492      (4,744)     2,274
 Changes in operating
  assets and liabilities:
 Accounts receivable        (67,498)   (33,525)     23,048    (47,800)
 Inventories                 35,508     (5,810)    (39,976)   (33,171)
 Other assets               (68,324)   (59,213)     (8,743)   (15,241)
 Accounts payable trade     (65,623)    18,624    (123,758)    30,132
 Accounts payable,
  related party               6,857     (1,038)     13,065     15,947
 Other liabilities           72,156     45,625      (2,225)    55,676
                          ----------  ---------  ----------  ---------
 Total adjustments          (36,302)   (11,295)    (18,968)    48,465
                          ----------  ---------  ----------  ---------

 Net cash provided by
  operating activities       59,339     59,201     111,788    193,477
                          ----------  ---------  ----------  ---------

 Cash flows from
  investing activities:
 Purchases of short and
  long term investments    (685,531)  (156,384)   (805,300)  (295,582)
 Proceeds from sale and
  maturities of short and
  long term investments     220,782    128,158     375,446    281,608
 Investment in Flash
  Partners                  (84,338)         -    (127,919)         -
 Acquisition of capital
  equipment, net            (37,125)   (26,067)    (89,722)   (56,218)
 Notes receivable from
  FlashVision                     -          -           -    (22,222)
 Notes receivable from
  Flash Partners            (95,445)         -     (95,445)         -
 Cash acquired in
  business combination
  with Matrix, net of
  acquisition costs               -          -       9,432          -
                          ----------  ---------  ----------  ---------
 Net cash used in
  investing activities     (681,657)   (54,293)   (733,508)   (92,414)
                          ----------  ---------  ----------  ---------

 Cash flows from
  financing activities:
 Proceeds from issuance
  of convertible notes,
  net of issuance costs   1,125,500          -   1,125,500          -
 Purchase of convertible
  bond hedge               (386,090)         -    (386,090)         -
 Proceeds from issuance
  of warrants               308,672          -     308,672          -
 Proceeds from employee
  stock programs             22,789      4,581      68,850     15,853
 Tax benefit on employee
  stock programs             19,114          -      61,023          -
                          ----------  ---------  ----------  ---------
 Net cash provided by
  financing activities    1,089,985      4,581   1,177,955     15,853
                          ----------  ---------  ----------  ---------

 Effect of changes in
  foreign currency
  exchange rates on cash        247       (205)        186        378
                          ----------  ---------  ----------  ---------

 Net increase in cash and
  cash equivalents          467,914      9,284     556,421    117,294

 Cash and cash
  equivalents at
  beginning of period       850,565    571,805     762,058    463,795

                         ----------- --------- ----------- ---------
 Cash and cash
  equivalents at end of
  period                 $1,318,479  $ 581,089  $1,318,479  $ 581,089
                          ==========  =========  ==========  =========




Contact:
SanDisk Corporation
Lori Barker Padon, 408-801-1384 (Investors)
Mike Wong, 408-801-1240 (Media)