This summary is based on the third quarter fiscal 2007 earnings call conducted by SanDisk Corporation. (SNDK) on October 18, 2007.
Management:
Chairman and Chief Executive Officer: Eli Harari
President and Chief Operating Officer: Sanjay Mehrotra
Executive Vice President, Administration, Chief Financial Officer: Judy Bruner
Senior Director of Investor Relations: Lori Barker
Key Investors Issues:
- The firm opened its first captive production facility in China.
- Discussions have commenced with Toshiba for a potential joint Fab 5 for late 2009.
- The firm is also in discussions with Hynix for a potential minority investment in one its 300-millimeter Flash fabs.
Year to Date Results:
- Revenues increased 26% from $2.1 billion in 2006 to $2.7 billion following strong growth in product revenues, up 26% and license and royalty, up 30%.
- Net income dropped from $234 million or $1.15 a share in 2006 to $112.5 million or 48 cents a share.
- Cash and cash equivalents fell 34% to $970.9 million following cash outflows from the purchase of investments.
Third Quarter Highlights:
Revenue grew 38% to $1.03 billion from $751 million in 2006 despite a 63% year-over-year decline in ASP per megabyte, reflecting a 100% increase in units sold and 267% in megabytes sold.
- The strongest retail growth was in the mobile handset market, where retail unit sales grew more than 300% over the prior year.
- The average capacity of a mobile card sold in retail was over 1.2 gigabytes, up 114% from the prior year.
Sales were also strong in the USB market with both unit sales and average capacity up over 100% from 2006.
OEM revenue grew 37% with megabytes sold up 206% and ASP per gigabyte down 57% as OEM growth was dominated by the mobile handset market, bundled camera cards, cards for GPS devices, and a small contribution from solid state drive sales.
License and royalty revenue was $119 million, up 52% from $78 million in 2006 due to higher MLC mix and better SLC pricing in licensees’ sales.
- Product gross margin improved by 7.4% following a reduction in inventory charges.
- In addition, the receipt of a one-time insurance payment for claims filed related to a fab power outage which occurred in 2006 also benefited margins.
- Production in Fab 4 commenced in September, ahead of schedule, resulting in start-up costs charged to cost of sales rather than R&D in the month of September.
Net income decreased by 18% from $103 million or 51 cents a share in 2006 to $84.6 million or 36 cents a share as a result of higher expenses.
- Operating expenses were $233.2 million from $167.7 million in the prior year, following growth in R&D as a result of Fab 4 start-up costs and increased engineering materials, masks and NRE.
- Sales and marketing expenses were up 61% to $72 million due to higher variable co-operative selling costs and higher spending on branding, merchandising and collateral materials.
The firm is carefully increasing headcount and absolute expense investment, while still reducing operating expenses as a percentage of revenue in line with the long-term model of 15% to 18% in 2008.
- Cash and investments, including long-term investments, remained unchanged at $3.2 billion.
- A total of $339 million was generated in cash from operations and $43 million in cash from employee stock programs, and the firm invested $324 million in Fabs 3 and 4 and $82 million in property and equipment.
The Flash joint ventures drew down $131 million of operating leases, bringing the net operating lease guarantees to just over $1 billion.
Accounts receivables were up $126 million and inventory was down $56 million, due to higher shipments.
New Products Introduced:
- The firm expanded its line of Sansa(R) players with the Sansa View, a video MP3 player with a vast array of features, and the Sansa Clip, a colorful, hip, wearable value priced MP3.
- It also began offering a line of Solid State Drives (SSDs) for resale to system integrators.
- The SanDisk Express(TM), a line of high-performance products to deliver best-of-class solutions for professional videographers and photographers who demand speed, reliability and durability, was launched.
