SanDisk: Fiscal 3Q12 Financial Results

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Abstracts of the earnings call transcript:

Sanjay Mehrotra, president and CEO:
"We delivered healthy sequential revenue growth in the third quarter, driven primarily by the company in our mobile embedded business within OEM. In addition, our retail revenue grew both sequentially and year-over-year, as we gained share across all major geographies worldwide. Our gross margins expanded sequentially through excellent improvements in product costs, combined with an improved pricing environment. In the OEM channel, we successfully ramped high-volume production of a customized solution for the leading OEM customer, and this product contributed significantly to the strong growth of our embedded mobile business during the third quarter. Additionally, our iNAND MCP and iNAND discrete products revenues grew from the second quarter and our next-generation high-performance iNAND solutions have been qualified in 13 mobile OEM platforms, and have now begun production ramps.
"Our Enterprise SSD revenue declined sequentially, impacted by delayed experience in qualification of 13 new models of our enterprise SSDs, which utilize captive flash memory.
"In the fourth quarter, we expect to have strong sequential growth in our enterprise SSD sales, including web usage of our captive flash memory.
"(…) we expect strong revenue growth in the fourth quarter in both client and enterprise SSDs, with full year combined SSD sales expected to be more than 10% of our 2012 revenue.
"From an industry perspective, based on third-party analyst reports regarding NAND Flash manufacturers' respective capacity and technology status, we now estimate 2012 industry-based supply growth to be approximately 60%, down from our previous estimate of approximately 70%. And for SanDisk, our 2012 captive supply rate growth is approximately 80%. For 2013, we now expect industry supply-based growth rate will be in the 30% to 40% range, lower than the 40% to 50% range we estimated back in July."

Judy Bruner, CFO:
"Our third quarter petabytes sold increased 36% compared to Q2 and 76% year-over-year, with strong petabyte growth in both our OEM and retail channels. With an improved industry supply-demand balance, our sequential rate of price declines subsided to 8% compared to 18% in the second quarter, whereas our year-over-year ASP per gigabyte decline remains high at 49%, reflecting the steep price decline in the first half of the year. The mix of our third quarter products revenue was 41% retail and 59% OEM. In the retail channel, our revenue grew 15% sequentially and 5% year-over-year, and we experienced solid sequential growth in all major product categories. USB sales did very well for the back-to-school season. Our imaging card sales reflected strong growth in high-performance cards where we are gaining share, and our mobile phone card sales grew sequentially and year-over-year. Revenue in our OEM channel grew 33% sequentially and declined 19% year-over-year. Embedded products for the mobile market drove the sequential OEM revenue growth and embedded sales were also up year-over-year. The year-over-year decline in our OEM revenue was primarily the result of mobile card debundling and secondarily, the steep year-over-year price decline. Our OEM mobile card sales were stable on a sequential basis. Our OEM SSD sales more than doubled year-over-year, but experienced a modest decline sequentially due to delays with certain enterprise SSD products, as Sanjay mentioned. Our license and royalty revenue was down 3% year-over-year due to the market decline in card sales on which we receive royalties, whereas sequentially, our license and royalty revenue increased 5%.
"On the balance sheet, cash and short and long-term marketable securities increased by $151 million, and ended the quarter at $5.4 billion on a gross basis and $3.5 billion, net of debt at the maturity value.
"Our fourth quarter revenue forecast is $1.5 billion, plus or minus $50 million.
"Looking ahead to 2013, as Sanjay commented, we believe that the industry's bit growth in 2013 will be in the 30% to 40% range, and we expect our own bit growth to be around the low end of that range.
"The overall SSD revenue was less than 10% of our total revenue in the third quarter, but we expect it will be quite a bit higher than 10% in the fourth quarter, and we expect that it will be over 10% of our total revenue for the full year 2012."