This summary is based on the fourth quarter fiscal 2007 earnings call conducted by SanDisk Corporation (SNDK: chart) on January 28, 2008.

Management:

Chairman of the Board, Chief Executive Officer: Dr. Eli Harari
President, Chief Operating Officer: Sanjay Mehrotra
Chief Financial Officer, Executive Vice President – Administration: Judy Bruner
Senior Director, Investor Relations: Lori Barker Padon

Key Investors Issues

- The earnings were 45 cents a share versus a loss of 17 cents in the prior year.
- Quarterly revenue of $1.25 billion was in line with the firm’s earlier guidance.
- Cash and short and long-term investments fell sequentially by $334 million to $2.9 billion.
- For fiscal 2008, the firm is currently forecasting total revenue growth of 15% to 25%.

Fourth Quarter Fiscal 2007 Financial Highlights

The GAAP net income was $106 million or 45 cents per share compared to a GAAP net loss of $35 million or 17 cents per share in the fourth quarter of 2006 that included a write-off of acquired in-process technology.

Excluding the impact of acquisition-related charges, share-based compensation expense and the related tax effect, fourth quarter non-GAAP net income increased to $162 million, or 69 cents per share, compared to third quarter 2007 non-GAAP net income of $130 million or 54 cents per share. Non-GAAP net income was $192 million, or 87 cents per diluted share, in the fourth quarter of 2006.

The fourth quarter revenue performance of $1.25 billion was in line with the firm’s expectations.

However, the quarterly revenue reflected lower price decline and lower megabyte growth than what the firm had forecasted. The lower sequential price decline of 11% was primarily the result of deferred pricing actions in U.S. retail and a favorable mix of product sales. A larger percentage of the firm’s sales came from products that carry a higher than average ASP per megabyte, such as high performance cards. The management believes that its sequential megabyte growth of 37%, below the 45% to 60% guidance provided last quarter, was primarily the result of weak U.S. consumer spending during the holiday period and somewhat tight supply in the first half of the quarter, which limited the firm’s ability to meet demand for some customers.

Overall, the Q4 retail revenue was $727 million or 65% of product revenue. The fourth quarter retail revenue grew 20% sequentially and 2% compared to Q4 of 2006. The year-over-year retail growth of 2% stems from a steep annual decline in ASP per megabyte coupled with weaker than normal year-over-year growth in U.S. unit sales, offset by very strong international unit sales growth. On a year-over-year basis, fourth quarter U.S. retail revenue was down 13% and international retail revenue was up 32%.

The fourth quarter OEM revenue of $391 million grew 26% sequentially, driven by microSD and iNand products sold to mobile handset vendors. The firm also saw nice sequential growth in the GPS market and in the industrial market. Compared to the fourth quarter of 2006, OEM revenue grew 7%, with strong growth in the Mobile market partially offset by the firm’s decision to de-emphasize sales of white label USB drives and exit the Twinsys joint venture.

License and royalty revenue for the fourth quarter of $128 million was higher than what the company had projected primarily due to higher than forecasted licensee pricing in the third quarter.

The non-GAAP product gross margin improved to 29.7% from 26.4% in Q3.

This improvement was driven by an increased proportion of 56-nanometer memory in the firm’s revenue and relatively modest price decline, partially offset by higher Fab 4 startup costs. The shipments for Q4 and for the full year included approximately 5% non-captive memory.

Non-GAAP operating expenses of $237 million were up $39 million sequentially with $34 million of the increase in sales and marketing, primarily due to seasonal advertising and merchandising.

Non-GAAP operating income for Q4 of $223 million was up 37% from the third quarter and at 17.9% of revenue was well within the firm’s 15% to 20% target financial model.

The Other Income for Q4 was $18 million, which is net of a $10 million impairment charge for the estimated cost to SanDisk of winding down investment in the 200-millimeter FlashVision joint venture. This reflects the expectation that the firm will receive less than its investment book value as it closes out its position in FlashVision.

The non-GAAP tax rate was 32.9% for Q4 and 34.2% for the year.