This summary is based on the fourth quarter fiscal 2006 earnings call conducted by SanDisk Corp. (SNDK) on January 30, 2007.
Management
Chairman and CEO: Eli Harari
EVP, Administration and CFO: Judy Bruner
Investor Relations: Lori Barker Pardon
Key Investor Issues
- Total revenue for 2006 was $3.258 billion versus $2.306 billion in 2005.
- Q4 GAAP product gross margin was 30.7% compared with 34.4% in Q4 2005.
- The retail presence grew to more than 208,000 storefronts, inclusive 67,000 in the mobile channel.
- Standalone SanDisk Q4 revenue rose 40% on a year-over-year basis to $1.048 billion.
Fourth-Quarter Financial Highlights
The consolidated product revenue was a record $1.079 billion in Q4.
This represents a 58% increase year-over-year including $115 million from the acquisition of msystems. The regions outside of North America drove more than 70% of the increase in 2006 product revenue on SanDisk standalone basis.
- The management reported an increased revenue market share in the U.S. from 46% to 48%.
- The license and royalty quarter revenue was $85 million, a year-over-year rise of 26%.
- Excluding the newly acquired M-systems business, the total megabytes sold in the fourth quarter increased 268% on a year-over-year basis and 73% sequentially.
- The megabytes sold increased 221% for the full year 2006, excluding msystems.
- On a SanDisk standalone basis, the Q4 average price per megabyte sold declined 62% on a year-over-year basis and 17% sequentially. The full year average price per megabyte dipped 58% bar msystems.
- The mobile business performed well achieving 25% of total consolidated revenue for the year.
- The MP3 business recorded strong Q4 results, with revenue growing 74% and unit sales doubling both on a year-over-year basis.
During the quarter, the non-GAAP gross margin was 32.3%, excluding msystems including msystems and 34.7% for SanDisk standalone.
This is in comparison with 34.4% in the fourth quarter of 2005 and 32.7% in the third quarter of fiscal 2006.
The consolidated GAAP operating income for Q4 was $12 million, or 1% of revenues.
- This is inclusive of a charge of $186 million for the write off of acquired in-process technology, $31 million for share-based compensation expenses and $20 million for other acquisition-related charges.
- The consolidated non-GAAP operating income bar above named expenses was $248 million or 21% of revenue compared with operating income of $198 million or 26% of revenue in the fourth quarter of fiscal 2005.
The consolidated net income was $199 million, or 96 cents per diluted share as at Q4 ending.
This is inclusive of a charge of $226 million for the write-off of acquired in-process technology, $101 million for share-based compensation expenses, $32 million for other acquisition related charges and a $35 million reduction in income taxes related to the items.
- The consolidated net income figure for last year Q4 was $386 million, or $2 per diluted share.
The management reported consolidated cash flow from operations of $594 million at year end.
- The comparative figure over last year was $481 million.
- The recorded total for cash, short term and long term investments was $3.3 billion at the end of fiscal 2006. This represented an increase of $295 million from third quarter, with about $143 million from the former M-Systems business as of the end of the year.
The SanDisk Q4 standalone non-GAAP operating expenses grew $29 million sequentially.
The highest growth was due to holiday related sales and marketing expenses. The non-GAAP standalone operating margin was 23.7% for the quarter and 21.8% for the year.
The company completed the acquisition of M-systems on November 19, 2006 in an all stock transaction valued at about $1.5 billion.
- The business added $115 million of revenue to the fourth quarter at a gross product margin of 13%.
- The six weeks of former M-Systems sales consisted of about 50% private label USB sales, about 25% embedded mobile and industrial applications and about 25% from the consolidation of the Toshiba-M-Systems JV.
