-- Megabytes Sold Increased 217% from Q3 2005
Business Editors/High-Tech Writers
MILPITAS, Calif.--(BUSINESS WIRE)--Oct. 19, 2006--SanDisk(R)
Corporation (NASDAQ:SNDK), the world's largest supplier of flash
storage card products, today announced results for the third quarter
ended October 1, 2006. Total third quarter revenue increased 27% on a
year-over-year basis to a record $751 million. Third quarter net
income as reported in accordance with U.S. Generally Accepted
Accounting Principles (GAAP) was $103 million, or $0.51 per diluted
share.
Excluding the impact of stock compensation expense and
amortization of acquisition related intangible assets and the related
tax effects, third quarter non-GAAP net income grew 15% to $124
million, or $0.61 per diluted share, which compares to the third
quarter 2005 GAAP net income of $107 million, or $0.55 per diluted
share.
"We are very pleased with our third quarter results," said Eli
Harari, chairman and chief executive officer of SanDisk Corporation.
"Demand for our mobile products continued to be strong in the fast
growing mobile phone market and we are pleased with our flash audio
player U.S. retail market share gains in the third quarter. Despite a
challenging pricing environment in the third quarter we delivered
non-GAAP operating margin of 21%, primarily due to our highly
competitive product cost structure from our captive Flash business
ventures in Japan. We expect to benefit in the fourth quarter from
projected seasonally strong holiday sales of digital cameras,
handsets, flash audio players, USB flash drives and gaming consoles
and we now believe growth in our megabytes sold will be approximately
200% for 2006."
Metrics and Highlights
- Product revenue grew 27% and license and royalty revenue grew
31% year-over-year.
- Megabytes sold in the third quarter increased 217%
year-over-year and 40% from the second quarter of 2006.
- Average capacity per card sold in retail grew 16% sequentially
to 882 megabytes.
- Average price per megabyte sold declined 25% sequentially and
60% from the third quarter of 2005.
- GAAP product gross margin for the third quarter of 2006 was
32% of product revenue similar to 32% in the second quarter of
2006 and compared to 37% in the third quarter of 2005.
- GAAP operating income for the third quarter of 2006 was $128
million or 17% of revenues. Non-GAAP operating income was $158
million or 21% of revenue compared to GAAP operating income of
$159 million or 27% of revenue in the third quarter of 2005.
- Cash flow from operations was $291 million compared to $209
million in the third quarter of 2005, and total cash and
investments increased sequentially by $286 million to $3.0
billion.
- SanDisk entered into a definitive agreement to acquire
msystems(TM) Ltd. in an all stock transaction expected to
close around the end of the calendar year.
- SanDisk introduced high capacity new products including the
4-gigabyte (GB) SD Ultra II High Capacity (HC) card, the 4-GB
miniSDHC, the 2-GB microSD(TM) and the 16-GB Extreme III
Compact Flash.
- Retail presence grew to more than 196,000 storefronts
including 62,000 in the mobile channel.
- SanDisk and Toshiba began construction on 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 October 19, 2006 at approximately 1:10 p.m. PDT. Judy
Bruner, SanDisk's Executive Vice President, Administration and CFO is
scheduled to appear on Bloomberg TV's "Bloomberg On The Markets" and
Bloomberg Radio's "Bloomberg on the Radio," October 20, 2006 beginning
at approximately 7:40 a.m. PDT.
Conference Call
SanDisk's third quarter 2006 conference call is scheduled for 2:00
p.m. PDT, Thursday, October 19, 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 913-981-5523. 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
fourth quarter of 2006, including anticipated increased demand for our
products, market supply and demand, expected fabrication production
schedules 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, risks related to
our potential acquisition of msystems, including that the acquisition
may not be consummated in a timely manner or at all, that we may not
realize the expected benefits of the acquisition due to integration
challenges, the loss of customers, suppliers, distributors or other
third parties or other issues, that we may incur substantial costs or
other damages associated with pending or future litigation related to
the merger or costs or damages related to msystems' prior stock option
grant practices and that we may incur charges or other accounting
changes as a result of the merger, the risk that 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 is a trademark of SanDisk Corporation, registered in the
United States and other countries. msystems is a trademark of msystems
Ltd.
SanDisk Corporation
Condensed Consolidated Statements of Income
(In thousands, except per share data, unaudited)
Three months ended Nine months ended
----------------------- -----------------------
October 1, October 2, October 1, October 2,
2006 2005 2006 2005
----------------------------------- -----------
Revenues:
Product $673,189 $529,735 $1,847,592 $1,383,176
License and royalty 78,196 59,896 246,238 172,326
----------- ----------- ----------- -----------
Total revenues 751,385 589,631 2,093,830 1,555,502
Cost of product
revenues 455,345 332,847 1,270,389 884,832
----------- ----------- ----------- -----------
Gross profits 296,040 256,784 823,441 670,670
Operating expenses:
Research and
development 78,073 43,420 215,620 150,771
Sales and marketing 44,961 31,610 133,403 83,241
General and
administrative 40,247 23,186 107,445 58,527
Write-off of acquired
in-process
technology - - 39,600 -
Amortization of
acquisition related
intangible assets 4,432 - 12,579 -
----------- ----------- ----------- -----------
Total operating
expenses 167,713 98,216 508,647 292,539
----------- ----------- ----------- -----------
Operating income 128,327 158,568 314,794 378,131
Total other income 32,223 11,999 72,700 22,614
----------- ----------- ----------- -----------
Income before taxes 160,550 170,567 387,494 400,745
Provision for income
taxes 57,269 63,109 153,457 148,275
----------- ----------- ----------- -----------
Net income $103,281 $107,458 $234,037 $252,470
=========== =========== =========== ===========
Net income per share:
Basic $0.53 $0.59 $1.20 $1.39
Diluted $0.51 $0.55 $1.15 $1.32
Shares used in
computing net income
per share:
Basic 196,317 183,047 194,974 181,716
Diluted 202,747 194,321 202,660 191,527
SanDisk Corporation
Reconciliation of GAAP to Non-GAAP Operating Results (1)
(In thousands, except per share data, unaudited)
Three months ended Nine months ended
----------------------- -----------------------
October 1, October 2, October 1, October 2,
2006 2005 2006 2005
----------------------------------- -----------
GAAP gross profit $296,040 $256,784 $823,441 $670,670
Equity-based
compensation (a) 2,621 - 5,099 -
----------- ----------- ----------- -----------
Non-GAAP gross profit $298,661 $256,784 $828,540 $670,670
=========== =========== =========== ===========
GAAP total operating
expenses $167,713 $98,216 $508,647 $292,539
Equity-based
compensation (a) (22,572) - (64,750) -
Write-off of acquired
in-process
technology (b) - - (39,600) -
Amortization of
acquisition-related
intangible assets
(c) (4,432) - (12,579) -
----------- ----------- ----------- -----------
Non-GAAP total
operating expenses $140,709 $98,216 $391,718 $292,539
=========== =========== =========== ===========
GAAP operating income $128,327 $158,568 $314,794 $378,131
Cost of goods sold
adjustments (a) 2,621 - 5,099 -
Operating expense
adjustments (a-c) 27,004 - 116,929 -
----------- ----------- ----------- -----------
Non-GAAP operating
income $157,952 $158,568 $436,822 $378,131
=========== =========== =========== ===========
GAAP net income $103,281 $107,458 $234,037 $252,470
Cost of goods sold
adjustments (a) 2,621 - 5,099 -
Operating expense
adjustments (a-c) 27,004 - 116,929 -
Income tax
adjustments (d) (9,292) - (24,875) -
----------- ----------- ----------- -----------
Non-GAAP net income $123,614 $107,458 $331,190 $252,470
=========== =========== =========== ===========
Basic net income per
share:
GAAP $0.53 $0.59 $1.20 $1.39
Non-GAAP $0.63 $0.59 $1.70 $1.39
Diluted net income per
share:
GAAP $0.51 $0.55 $1.15 $1.32
Non-GAAP $0.61 $0.55 $1.63 $1.32
Shares used in
computing basic net
income per share:
GAAP 196,317 183,047 194,974 181,716
Non-GAAP 196,317 183,047 194,974 181,716
Shares used in
computing diluted net
income per share:
GAAP 202,747 194,321 202,660 191,527
Non-GAAP 203,757 194,321 203,744 191,527
(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)
October 1, January 1,
2006 2006(1)
ASSETS (unaudited)
------------- -------------
Current Assets:
Cash and cash equivalents $1,474,155 $762,058
Short-term investments 1,077,257 935,639
Accounts receivable, net 304,934 329,014
Inventories 396,220 331,584
Deferred taxes 99,610 95,518
Other current assets 80,814 121,922
------------- -------------
Total current assets 3,432,990 2,575,735
Long-term investments 419,916 -
Property and equipment, net 256,437 211,092
Notes receivable and investments in flash
ventures 480,868 265,074
Deferred taxes 150,114 -
Goodwill 160,681 5,415
Intangibles, net 92,299 4,608
Other non-current assets 57,450 58,263
------------- -------------
Total Assets $5,050,755 $3,120,187
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $147,009 $231,208
Accounts payable to related parties 100,852 74,121
Other current accrued liabilities 169,714 115,525
Deferred income on shipments to
distributors and retailers and deferred
revenue 133,079 150,283
------------- -------------
Total current liabilities 550,654 571,137
Convertible senior notes 1,150,000 -
Deferred revenue and non-current
liabilities 36,729 25,259
------------- -------------
Total Liabilities 1,737,383 596,396
Commitments and contingencies
Stockholders' Equity:
Common stock 2,166,506 1,622,007
Retained earnings 1,140,661 906,624
Accumulated other comprehensive income 6,205 2,635
Deferred compensation - (7,475)
------------- -------------
Total stockholders' equity 3,313,372 2,523,791
------------- -------------
Total Liabilities and
Stockholders' Equity $5,050,755 $3,120,187
============= =============
(1) Information derived from the audited Condensed Consolidated
Financial Statements.
SanDisk Corporation
Condensed Consolidated Statement of Cash Flows
(In thousands, unaudited)
Three months ended Nine months ended
----------------------- -----------------------
October 1, October 2, October 1, October 2,
2006 2005 2006 2005
----------- ----------- ----------- -----------
Cash flows from
operating activities:
Net income $103,281 $107,458 $234,037 $252,470
Adjustments to
reconcile net income
to net cash provided
by operating
activities:
Deferred taxes (6,626) (1,270) (24,021) (194)
Loss (gain) on
investments (169) (501) (1,364) 8,752
Depreciation and
amortization 32,043 17,493 89,709 46,906
Provision for
doubtful accounts 1,759 52 2,760 (111)
Stock-based
compensation expense 25,193 522 69,881 1,591
Tax benefit from
share-based
compensation (3,057) - (64,080) -
Write-off of acquired
in-process
technology - - 39,600 -
Other non-cash
charges 7,946 7,194 3,201 9,468
Changes in operating
assets and
liabilities:
Accounts receivable 5,228 31,227 28,276 (16,573)
Inventories (17,789) (57,285) (57,765) (90,456)
Other assets 55,851 47,978 47,108 32,737
Accounts payable
trade 35,395 31,210 (88,363) 61,342
Accounts payable,
related party 15,314 408 28,380 16,355
Other liabilities 37,006 24,021 95,804 79,697
----------- ----------- ----------- -----------
Total adjustments 188,094 101,049 169,126 149,514
----------- ----------- ----------- -----------
Net cash provided by
operating activities 291,375 208,507 403,163 401,984
----------- ----------- ----------- -----------
Cash flows from
investing activities:
Purchases of short
and long term
investments (632,895) (195,700) (1,438,195) (491,282)
Proceeds from sale
and maturities of
short and long-
term investments 506,326 174,150 881,772 455,758
Investment in Flash
Partners and Flash
Alliance (4,290) - (132,209) -
Acquisition of
capital equipment,
net (33,721) (24,282) (123,443) (80,500)
Notes receivable
from Flash Vision 8,524 (12,027) 8,524 (34,249)
Notes receivable
from Flash
Partners - - (95,445) -
Cash acquired in
business
combination with
Matrix, net of
acquisition costs - - 9,432 -
----------- ----------- ----------- -----------
Net cash used in
investing activities (156,056) (57,859) (889,564) (150,273)
----------- ----------- ----------- -----------
Cash flows from
financing activities:
Proceeds from
issuance of
convertible notes,
net of issuance
costs - - 1,125,500 -
Purchase of
convertible bond
hedge - - (386,090) -
Proceeds from
issuance of
warrants - - 308,672 -
Proceeds from
employee stock
programs 17,258 32,390 86,108 48,243
Tax benefit from
share-based
compensation 3,057 - 64,080 -
----------- ----------- ----------- -----------
Net cash provided by
financing activities 20,315 32,390 1,198,270 48,243
----------- ----------- ----------- -----------
Effect of changes in
foreign currency
exchange rates on cash 42 485 228 863
----------- ----------- ----------- -----------
Net increase in cash
and cash equivalents 155,676 183,523 712,097 300,817
Cash and cash
equivalents at
beginning of period 1,318,479 581,089 762,058 463,795
----------- ----------- ----------- -----------
Cash and cash
equivalents at end of
period $1,474,155 $764,612 $1,474,155 $764,612
=========== =========== =========== ===========
CONTACT: SanDisk Corporation
Investor Contacts:
Lori Barker Padon, 408-801-1384
Jay Iyer, 408-801-2067
Media Contact:
Mike Wong, 408-801-1240
SOURCE: SanDisk Corporation
