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SanDisk: Fiscal 4Q15 Financial Results

Revenue decreased 11% Y/Y and increased 6% Q/Q, -16% for FY15, -19% to -24% expected next quarter

(in $ million) 4Q14 4Q15 FY14 FY15
Revenue 1,735 1,543 6,628 5,565
Growth   -11%   -16%
Net income (loss) 201.9 135.5 1,007 388.5

SanDisk Corporation announced results for the fourth quarter and fiscal 2015 ended January 3, 2016.

Fourth quarter revenue of $1.54 billion decreased 11% on a year-over-year basis and increased 6% sequentially.

Annual revenue for 2015 was $5.56 billion, a decrease of 16% from 2014.

On a GAAP basis, fourth quarter net income was $135 million, or $0.65 per share, compared to net income of $202 million, or $0.86 per share, in the fourth quarter of 2014 and net income of $133 million, or $0.65 per share, in the third quarter of 2015. Annual net income for 2015 was $388 million, or $1.82 per share, compared to $1.01 billion, or $4.23 per share, in 2014.

On a non-GAAP basis, fourth quarter net income was $257 million, or $1.26 per share, compared to net income of $294 million, or $1.30 per share, in the fourth quarter of 2014 and net income of $223 million, or $1.09 per share, in the third quarter of 2015. Annual net income for 2015 was $750 million, or $3.61 per share, compared to $1.29 billion, or $5.60 per share, in 2014. For a reconciliation of non-GAAP to GAAP results, see accompanying financial tables and footnotes.

I am pleased to report an excellent fourth quarter finish to 2015 driven by strong performance in enterprise and retail,” said Sanjay Mehrotra, president and CEO. “We made substantial progress in the second half of 2015 in reinvigorating our portfolio, improving our product execution and expanding our customer engagements. We also achieved an important milestone in beginning our multi-year conversion to 3D NAND, with first retail product shipments and initial OEM customer sampling in the fourth quarter.

Highlights

  • Announced two ecosystem partnerships that leverage the SanDisk InfiniFlash System; one with Super Micro Computer, Inc. and Nexenta Systems, Inc. and another with Quanta Cloud Technology.
  • At the Las Vegas Consumer Electronics Show, launched the SanDisk X400 client SSD, a 15-nanometer X3-based SSD which is the world’s thinnest 1TB M.2 SSD and the industry’s first single-sided 1TB SATA M.2 form factor with a 1.5mm height.
  • Also at CES, introduced new retail products including the SanDisk Extreme 510 Portable SSD, a high-performance ‘all-terrain’ portable SSD which is both durable and water-resistant, as well as the 200GB SanDisk Connect Wireless Stick and the 128GB SanDisk Ultra Dual USB Drive 3.0.

Comments

President and CEO Sanjay Mehrotra anticipates that the acquisition by Western Digital is likely to close in the second calendar quarter of 2016, and teams from both companies are engaged in integration planning.

Here are the comments of the flash company on its financial results:

Enterprise Solutions

  • Revenue grew 29% sequentially driven by customer shipments across SAS, SATA and PCIe interfaces
  • Fusion-io based PCIe solutions revenue reached post-acquisition record
  • 15nm 2TB enterprise SATA SSDs gaining excellent adoption: enterprise SATA sales to hyperscale customers more than doubled sequentially
  • 4TB Optimus Max enterprise SAS drove overall sequential revenue growth in SAS category: 15nm 12Gb enterprise SAS SSDs on track for introduction later in 2016
  • InfiniFlash System customer and partner interest growing, expect acceleration of customer deployments in 2016

Client SSDs

  • Revenue grew 33% sequentially in retail and commercial channels combined
  • Began volume shipments for 15nm X2 client SSDs with certain OEMs, additional qualifications underway
  • Began shipments of r15nm X3 client SATA SSDs in retail and commercial channels, several OEMs began qualifications
  • Client SSD attach rate for corporate laptops exiting 2015 was in high-30% range, expected to surpass 50% in 2017

Product Updates

Embedded Solutions

  • Revenue declined sequentially due to weaker than expected smartphone market and early stages of X3 adoption for eMMC solutions
  • Shifted memory supply away from aggressively priced, lower-capacity embedded multi-chip package products that combine DRAM and flash to more profitable product opportunities

Retail

  • Revenue grew 24% sequentially driven by strong holiday season across all geographies and product categories
  • Gained retail market share in all product categories, sequentially and year-over-year in 4Q15

Connected Home, Industrial and Auto

  • 2015 revenue grew more than 50% year-over-year driven by iNAND embedded and SD removable solutions

Technology & Manufacturing Updates

2D NAND

  • Mix of 15nm technology approximately 75% of total bit supply in Q4 2015
  • Achieved record yields on 15nm for any NAND technology in our history
  • Mix of using X3-based product sales reached 70% in 4Q15

3D NAND

  • Shipped initial quantities of 48-layer, X3, 3D NAND in retail products and first OEM customer samples
  • Began 3D NAND conversion in New Fab 2 in January, with initial output expected later in 1Q16
  • 3D NAND costs expected to be similar to 2D 15nm exiting 2016, with the next-generation 3D NAND achieving lower cost versus 2D NAND in 2017

Supply

  • 2015 Y/Y industry supply bit growth was in the mid-40% range, SanDisk bit supply growth approximately 51%
  • 2016 Y/Y industry bit supply growth expected to be in the low-30% range, given: 2D NAND scaling reaches its limits, and 3D NAND is expected to represent about 15% to 20% of industry wafer capacity exiting the year
  • 2016 Y/Y SanDisk captive bit supply growth expected to be somewhat lower than industry bit supply growth
  • Planning to add 5% additional wafer capacity in mid-2016, consisting of a mix of both 2D and 3D NAND technologies    

SanDisk expects next quarter's revenue to be down year-over-year because 1Q15 still included revenue from the OEM client SSD platform (Apple?) that was phased out during that quarter, and because of current weakness in the smartphone market. The company forecasts 1Q16 revenue between $1.175 billion and $1.250 billion only, or down between 24% and 19%.

Furthermore, the company expects its reduction in cost per gigabyte to be less in 2016 than in 2015, although still within its 15% to 25% annual target range.                 

Revenue Mix by Category
                                                            sandisk categoty                                                                
Percentages may not add to 100% due to rounding                                                                            
          

Click to enlarge        
Quarterly and Annual Metrics
sandisk metrics

(10) Cost per gigabyte and cost reduction are non-GAAP and are computed from non-GAAP cost of revenue.
(11) Reflects SanDisk China and Malaysia factory employees, excluding temporary and contract workers.
(12) During 2014, 1,505 employees were converted from contractor to employee status
in SanDisk's assembly and test facility in China.
(13) Reflects SanDisk non-factory employees, excluding temporary and contract workers.

Prepared remarks of SanDisk 4Q15 and FY15 results

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