This summary is based on the first quarter fiscal 2007 earnings call conducted by SanDisk Corp. (SNDK: chart) on April 26, 2007.

Director of Investor Relations: Lori Barker Padon
Chairman, and Chief Executive Officer: Dr. Eli Harari
Executive Vice President, Administration and Chief Financial Officer: Judy Bruner

Key Investors Issues

- EPS were break-even per share compared to a profit of 17 cents per share last year.
- The company posted a $575,000 loss compared to earnings of $35.1 million a year ago.
- Revenue was $786.1 million compared to $623.3 million a year ago.

First Quarter Highlights

Product revenue increased 28% year over year, resulting from an increase in megabytes sold of 209%, a decline in ASP per megabyte sold of 62%, and the consolidation of the USB joint venture between former M-Systems and Toshiba.

On a sequential basis, megabytes sold were down 22%, and ASP per megabyte was down 23%, with the ASP decline much more aggressive in the retail channel.

The mix of product revenue was 49% retail and 51% OEM.

Retail sales exhibited more seasonality as compared to last first quarter. Retail units sold were down 32% sequentially, compared to down 19% sequentially in the prior year. This first quarter decline may be related to the strong fourth quarter of 2006, in which the company experienced 52% sequential unit growth, compared to 37% growth in the previous fourth quarter.

Compounding the seasonally down unit sales was retail pricing environment in which retail ASP per megabyte was down 35% sequentially, and relatively low growth in average capacity from the fourth quarter to the first quarter.

On a year-over-year basis, retail units sold grew 50% and average retail capacity increased 87%, but with ASP per megabyte down 67% year over year, retail revenue was down 8% year over year.

At retail sales by end-market, the company experienced strong year-over-year unit growth in all five of key end-markets, with the strongest year-over-year unit growth in mobile, MP3, and gaming. Year-over-year unit growth in retail USB flash drives was equal to average retail unit growth, while unit growth in the digital still camera market was below the blended average, but still up 39% year over year.

In OEM revenue, there is the addition of the former M-Systems business.

On a sequential basis, OEM unit sales grew 4%, and ASP per megabyte was flat, but OEM revenue declined 8% sequentially due to a lower average capacity. The company is selling embedded NAND products, which are lower average capacity and higher ASP per megabyte than legacy SanDisk products. With a full quarter of this business compared to six weeks in the fourth quarter, statistics on average capacity and change in ASP per megabyte are distorted.

For legacy SanDisk OEM business from the fourth quarter to the first quarter, unit sales were approximately flat and ASP per megabyte was down 9%, a much less aggressive price change than retail business, but this is largely timing related.

On a year-over-year basis, legacy SanDisk OEM business experienced unit sales growth of 80%, and consolidated OEM business had unit sales growth of 130%. Consolidated OEM average capacity increased 69% year over year, and ASP per megabyte decreased 54% year over year, again influenced by the addition of the embedded business. In total, OEM revenue was up 109% year over year, which included growth in the SanDisk legacy OEM revenue of 25% year over year. The strongest OEM growth came from the mobile market, in which unit sales grew 117% year over year.

Compared to last year, OEM revenue benefited from the addition of the former M-Systems embedded industrial business, and the white label USB drive business.

While the company has de-emphasized the white label USB business, it did still contribute to first quarter revenue, as did the consolidation of the USB joint venture with Toshiba, called Twinsys, which added $53 million to revenue.

Royalty revenue, of $97 million, was above previous forecast, primarily due to the mix of component royalties from licensees, and stronger card-based royalties.