This summary is based on the second quarter fiscal 2007 earnings call conducted by SanDisk Corporation (SNDK) on July 19, 2007.
Executives:
Lori Barker Padon - Senior Director of IR
Eli Harari - Chairman of the Board, and CEO
Judy Bruner - Executive Vice President, and Administration & CFO
Sanjay Mehrotra - President, and COO
Key Investors Issues
- Revenues rose 16.4% from a year ago to $827 million.
- Operating expenses increased 46.6% from a year ago to $210 million.
- Net income fell 70.2% from a year ago to $28.5 million.
- Earnings per share fell by 74% from a year ago to 12 cents.
- License and royalty revenue was $107 million, up 30% from a year ago.
Second Quarter Highlights
- Revenues increased 16.4% on the back of a 13% increase in product revenue reflecting an increase in megabyte sold.
- Retail revenue was up 9% reflecting robust growth in megabyte sold of 236%.
- The 30% increase in license and royalty revenue was due to the addition of the agreement with Hynix.
Operating expenses rose 46.6% from a year ago to $210 million due to higher research and development costs and marketing initiatives.
- Cash and investments decreased $267 million to $3.2 billion due to an increase in product and royalty receivables.
- A total of $54 million was invested in SanDisk capital equipment including assembly and test equipment for China.
- Share repurchases amounted to $55 million.
Overall revenue market shares in Europe across all product categories increased by almost 4 percentage points.
Key Market Developments:
- Total unit shipments of digital cell cameras worldwide grew 25% year-over-year according to the Camera and Imaging Products Association.
- MCPs will represent a growing segment of the embedded mobile storage market, with revenues starting in the first half of 2008.
New organizational structure and the market expansion initiative are already bearing fruit.
- Retail units and revenue increased more than 50% sequentially.
- Average retail mobile card capacity grew about 20% reflecting continued adoption of high capacity cards for mobile applications.
- The 64GB solid state drive for notebook PCs was launched.
- Solid State Drives (SSD) expanded to include the 2.5 inch 64-gigabyte (GB) SSD replacement for hard drives used in notebook PCs.
- IBM selected the 2.5 inch SSD for storage within the BladeCenter(R) HS21 XM.
An agreement was signed with Microsoft for a next-generation software and hardware solution on USB flash drives and flash cards.
- Two corporate USB flash drives with mandatory security and optional centralized control were introduced.
- Three new high capacity mobile cards were announced to meet consumer''s growing demand for handset storage.
- Extreme Compact Flash(R) and SD(TM) Plus memory cards marketing partnership commenced with Ducati.
- Fab 4 is on schedule with initial production planned for the end of the year and ramping up during 2008.
Third Quarter 2007 Outlook
- Megabyte growth is expected to range between 20% and 40%.
- ASP per megabyte is expected to decline due to the impact of price reductions implemented in June,.
- Consequently, revenue is forecast to be in in the range of $750 million to $825 million.
- License and royalty revenue is forecast to be between $105 and $115 million..
For 2007, the company is raising its forecast of license and royalty revenue from the previous forecast of $400 million to a range of $420 million to $430 million.
- The company expects cost decline to exceed price decline leading to forecasted non-GAAP product gross margin of 20% to 24% in the third quarter.
- The company currently anticipates a continued gradual increase in gross margin for the fourth quarter as SanDisk benefits from a higher mix of 56 nanometer sales.
- Third quarter GAAP product gross margin is expected to be lower than non-GAAP by approximately 3 percentage points due to the inclusion of stock compensation and acquisition related purchase accounting charges.
Third quarter non-GAAP operating expenses are expected to be in the range of $205 million to $215 million, reflecting a sequential increase of $20 to $25 million.
- Non-GAAP operating expenses are expected to increase again in the fourth quarter due to seasonal sales and marketing expenses.
- Fab 4 start-up costs are forecasted to be at approximately the same level in the fourth quarter as in the third quarter.
- Third quarter GAAP operating expenses are expected to be higher than non-GAAP by approximately $34 million to $38 million due to stock compensation and acquisition related intangible assets.
