SanDisk Corporation (SNDK)
Q3 2008 Earnings Call Transcript
October 20, 2008 5:00 p.m. ET

Executives

Lori Barker - Senior Director of Investor Relations
Eli Harari - Chairman and Chief Executive Officer
Judy Bruner - Executive Vice President, Administration and Chief Financial Officer
Sanjay Mehrotra - President and Chief Operating Officer

Analysts

Craig Ellis - Citigroup
Edwin Mok - Needham & Company
Daniel Berenbaum - Cowen & Company
Kate Kaslarski - Goldman Sachs
Daniel Amir - Lazard Capital Markets
Vijay Rakesh - ThinkPanmure
Gary Hsueh - Oppenheimer & Company
Bob Gujavarty - Deutsche Bank
Scott Hirleman - Robert W. Baird

Presentation

Operator

Good day and welcome to the SanDisk Corporation’s third quarter 2008 earnings conference call. At this time, I would like to turn the conference over to Miss Lori Barker, Senior Director of Investor Relations. Please go ahead, ma’am.

Lori Barker

Thank you. Good afternoon and welcome to SanDisk Corporation’s financial teleconference for the third quarter of 2008. I’m Lori Barker, SanDisk’s Senior Director of Investor Relations. Joining me is Dr. Eli Harari, Chairman and CEO of SanDisk, Sanjay Mehrotra, President and COO, and Judy Bruner, Executive Vice President of Administration and CFO.

The agenda for today’s teleconference is as follows: Eli will start with an update on the industry and SanDisk’s overall strategy. Judy will follow with a review of our third quarter financial results and future guidance, and Sanjay will also join us for the question-and-answer session at the end of the call.

Any non-GAAP financial measures discussed during this call as defined by the SEC in Regulation G will be reconciled to the most directly comparable GAAP financial measure. That reconciliation is now available along with supplemental schedules on our website at sandisk.com. After the completion of this call, an audio replay of this conference, a copy of today’s prepared comments and quarterly metrics will be made available on SanDisk’s Investor Relations website at sandisk.com.

During our call today we will be making forward-looking statements. Any statement that refers to expectations, projections or other characterizations of future events including financial projections and future market conditions, is a forward-looking statement. Actual results may differ materially from those expressed in these forward-looking statements. Certain factors that may cause actual results to differ are detailed under the caption “Risk Factors” and elsewhere in the documents that we file from time to time with the SEC, including our Annual Report on Form 10-K for fiscal 2007 and our quarterly reports on Form 10-Q. We undertake no obligation to update these forward-looking statements, which speak only as of the date hereof.

Now I’d like to turn the call over to our CEO, Eli Harari.

Eli Harari

Thank you Lori and thank you for joining us. Today, I’m going to talk to you about four key topics -- the first one is industry conditions and SanDisk’s competitive positioning; the second one is today’s announcement with Toshiba about restructuring our joint venture manufacturing agreements and other proactive steps that we are taking to maintain our competitiveness and further strengthen our balance sheet; then I’ll talk about IP developments; and I’ll conclude with our perspective on Samsung’s proposal.

Our industry continues to experience excessive inventories, operating losses and weakening balance sheets, as a result of NAND fab investment decisions that were made well before the current global economic crisis. Recently, major NAND manufacturers announced shut-downs of 200-millimeter NAND wafer fabs and push outs of new 300-millimeter capacity. This is a positive step for bringing supply into balance with demand so that pricing can stabilize and so that profitability can return.

Although this correction will not be felt overnight, I believe that patience will be rewarded. Meanwhile, demand for NAND flash megabytes continues to grow as current pricing trends are accelerating the adoption of NAND in new markets such as GPS, video capture, high-end handsets, and solid-state disks in computing applications.

SanDisk is in an exceptionally strong competitive position. Fab 4 is ramping 43-nanometer technology at a remarkable rate and with excellent yields, and we believe that the massive scale of Fabs 3 and 4 combined applied at 43-nanometer and 3 bits per cell now provides us the lowest cost NAND in the industry.

In the first quarter of 2009, we expect to start customer shipments of 32-gigabit NAND with 3 bits per cell architecture that achieves a smaller die size than a competitor’s 34-nanometer NAND with 2 bits per cell architecture. In the second quarter of 2009, we expect to start customer shipments of the industry’s first 64-gigabit die employing 4 bits per cell X4 technology, manufactured again on 43-nanometer technology. By mid-2009 SanDisk and Toshiba expect to commence the transition from the 43-nanometer to the 32-nanometer technology node, including 3 bits per cell designs.