Cash flow from operations was a positive $149 million for Q4, and was offset by investments of $202 million in repurchasing shares, $203 million in Fab 3 and Fab 4, and $79 million in capital equipment.

The firm made substantial gains in the portable navigation device market as sales of iNAND, the embedded flash product line, grew significantly in the fourth quarter.

In the audio/video business, the firm’s strategy of focusing on the sub-$100 price range was successful, as the firm saw strong unit sales of Sansa Clip MP3 players during the holiday season.

In the fourth quarter, the company implemented product focused advertising campaigns.

For example, the firm initiated a “Go Take Pictures” campaign for its imaging products in select U.S. markets and in the U.K., France, and Germany. The firm also kicked off a “Wake Up Your Phone” campaign to educate consumers about what they can do with a SanDisk mobile card in their phones. Targeted initiatives such as the Ducati campaign and TV advertising for the Sansa Shaker reflect the firm’s commitment to further enhance the SanDisk brand.

From technology and operations standpoint, the firm achieved consistent excellent yields on the 56-nanometer manufacturing technology and Fab 4 continued to ramp well.

During the quarter, the overall cost declines exceeded ASP declines on a per megabyte basis with 56-nanometer production exceeding two-thirds of the firm’s quarterly bit production. The company is on track to begin the production of 3 bits per cell on 56-nanometer in the March/April timeframe and 43-nanometer 2 bits per cell technology in the Q2 time frame. Ramping these technologies will be a major focus in 2008 as the firm continues to drive aggressive memory manufacturing cost reductions.

Furthermore, the company effectively leveraged its Shanghai assembly and test factory for developing industry leading nine die stack assembly technology which is utilized to build the 8-gigabyte microSD and 8-gigabyte Memory Stick Micro cards.

Fiscal 2007 Financial Highlights

The 2007 non-GAAP net income was $408 million, or $1.73 per diluted share, compared to $523 million, or $2.51 per diluted share in fiscal 2006.

The non-GAAP operating income was $507 million, or 13% of revenue. While operating income was lower in 2007 than in 2006, the firm believes that it performed well in a year of 60% price decline, continuing to invest in technology, products and channel footprint, and it believes that it improved its competitive position.

The revenue grew 20%, with product revenue up 18% and license and royalty revenue up 36%.

Product revenue for the year reflected unit growth of 75%, megabyte growth of 190% and ASP per megabyte decline of 60%.

- The 2007 retail revenue grew 9% over 2006, with very robust international retail growth offsetting a slight decline in North America retail revenue.
- The OEM revenue for the full year 2007 grew by 33% over 2006.
- The license and royalty revenue of $450 million was 12% of the total revenue, increasing from 10% of revenue in 2006, largely due to the addition of a new licensee.

For the full year, the cash flow from operations was $653 million, up from $598 million in 2006.

Accounts receivable ended the year at 38 days of sales and inventory was 64 days. Channel inventory ended the year at six weeks, the same level that existed at the end of 2006.

Mobile business was SanDisk’s highlight of 2007 and the largest revenue generator by end market.

Accounting for 35% of total revenue, mobile product unit sales more than doubled year-over-year, led by continued strength in microSD cards in the retail and OEM channels. In addition, the average capacity of the firm’s mobile cards nearly doubled due to increasing storage requirements in mobile phones and the firm began shipments of its high capacity 8-gigabyte microSD and 8-gigabyte Memory Stick Micro M2 mobile cards. In Q4 alone, the firm sold a record 51 million mobile units.

Unit sales of imaging cards grew nicely in 2007, in part due to resurgence in the digital camera market.

The company’s high-performance Extreme and Ultra card unit sales nearly doubled year-over-year. On the SSD front, the firm continues to see this as a major new growth market in future years. HP will include SanDisk’s 16-gigabyte SSDs in the dc7800 line of business desktop personal computers. HP also has indicated that it expects to incorporate higher capacity SSDs in the future. The significance of this design win is that it represents early adoption of SSD for local storage in business desktop applications working in tandem with corporate central servers. The benefits are significant power savings, faster boot-up, and immunity from disk crashes. As for the internal development of MLC based SSD, the firm has shifted its efforts to the 43-nanometer technology since the 56-nanometer technology node will be retired from production in early 2009. The firm now expects to sample 43-nanometer MLC SSD products late in 2008.