SanDisk Corp. (SNDK)
Q4 2009 Earnings Call Transcript
January 28, 2010, 5 p.m. ET

Executives

Jay Iyer - Director, Investor Relations
Eli Harari – Chairman and Chief Executive Officer
Sanjay Mehrotra – President and Chief Operating Officer
Judy Bruner – Executive Vice President, Administration and Chief Financial Officer

Analysts

Daniel Amir - Lazard Capital Markets
James Covello - Goldman Sachs
Tristan Gerra - Robert W. Baird & Co.
Craig Ellis - Caris & Co.
Gary Hsueh - Oppenheimer & Co.
Bob Gujavarty - Deutsche Bank
Jelta Fonner (ph) - Thomas Weisel Partners
Uche Orji - UBS
Daniel Berenbaum - Auriga USA
Hendi Susanto - Gabelli & Co.
Paul Coster – J.P. Morgan

Presentation

Operator

Good day and welcome to the SanDisk Corporation fourth quarter 2009 earnings conference. Today''s call is being recorded. At this time, I would like to turn the conference over to Jay Iyer, Director of Investor Relations.

Jay Iyer

Thank you, Mark. And good afternoon, everyone. Joining us today on the call are Dr. Eli Harari, Chairman and CEO of SanDisk; Sanjay Mehrotra, President and COO and Judy Bruner, Executive Vice President of Administration and CFO.

Before we begin, please note that 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 measures. That reconciliation is now available along with our supplemental schedules on our Web site at SanDisk.com/IR.

In addition, during our call today, we will make 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 differ materially from those expressed in these forward-looking statements.

For more information, please refer to the risk factors discussed in the documents we file from time to time with the SEC including our Annual Report on Form 10-K/A for fiscal 2008 and our subsequent quarterly reports on Form 10-Q. SanDisk assumes no obligation to update these forward-looking statements which speak as of the date hereof. With that, I would like to turn the call over to Eli.

Eli Harari

Thank you, Jay. And good afternoon. Q4 was our best ever quarter for product revenue, margin and cash flow reflecting a dramatic reversal in our results when compared to the fourth quarter a year ago. Pricing held up well throughout the fourth quarter and product margins benefited from a 20% sequential reduction in cost per gigabyte.

A year ago, the fourth quarter of 2009 marked the bottom of the industry down cycle with all past member (ph) and manufacturers operating at negative margin and reporting heavy losses. By the fourth quarter of 2009, all non supplies including ourselves were reporting vastly improved results partly resulting from production cut backs in the first half of 2009.

Despite the recession, global demand for NAND flash continued to grow and by the second half of 2009 flash manufacturers returned to 100% capacity utilization. This turnaround happened considerably more rapidly than expected demonstrating the remarkable ability of this young industry to self correct.

This is an important factor that we have discussed with you in the past. While we benefited significantly as did others from the general improvement in market conditions that is a rising tide lifts all boats I do believe that our decisive actions at SanDisk contributed much more so to our rapid turnaround amidst the ongoing industry recovery. I would like to reflect on the more important of these SanDisk actions.

In the fourth quarter of 2008, we structured the Company to streamline our organization along retail and OEM businesses which allowed us to reduce our non-GAAP operating expenses by 25% in 2009 compared to 2008.

We opened up major new OEM sales channels and we set our number one priority to return to profitability as evident in our Q3 and Q4 results. In Q1 2009, we sold approximately 20% of our captive capacity to Toshiba and we further cut our captive output by throttling that capacity utilization rate at our Yokkaichi fabs by more than 20% in the first half of 2009. At the same time throughout 2009, we sustained our investments in advanced NAND flash and 3D redrive technologies, 3-bits-per-cell and 4-bits-per-cell NAND architecture, advanced proprietary controller chips and new products for both our retail and OEM businesses.