SanDisk: Fiscal 3Q09 Financial Results

SanDisk Corporation announced results for the third quarter ended September 27, 2009. Total third quarter revenue of $935 million increased 14% on a year-over-year basis and increased 28% on a sequential basis.

Net income, in accordance with U.S. Generally Accepted Accounting Principles (GAAP), was $231 million, or $0.99 per diluted share, compared to GAAP net loss of ($166) million or ($0.74) per share in the third quarter of 2008 and GAAP net income of $53 million, or $0.23 per diluted share in the second quarter of 2009.

On a non-GAAP basis, which excludes the impact of acquisition-related charges, share-based compensation expense, and non-cash economic interest expense associated with the cash-settled convertible note, third-quarter net income was $176 million, or $0.75 per diluted share, compared to a net loss of ($132) million or ($0.59) per share in the third quarter of 2008 and net income of $83 million or $0.36 per diluted share in the second quarter of 2009. For reconciliation of non-GAAP to GAAP results, see accompanying financial tables and footnotes.

“Our outstanding Q3 results reflect major gains in our OEM business with strong orders continuing into Q4. Product gross margin improved dramatically, driven by favorable pricing and strong product cost reductions. We are encouraged by improved industry fundamentals and our increasingly diversified global markets, which bode well for further growth in Q4 and in 2010,” said Eli Harari, Chairman and CEO, SanDisk.

Third Quarter Metrics and Highlights

• Free cash flow generated was $220 million.
• Total cash and equivalents, short and long-term investments at the end of the third quarter were $2.58 billion compared to $2.64 billion at the end of the third quarter of 2008 and $2.34 billion at the end of the second quarter of 2009.
• Total revenue was $935 million, up 14% year-over-year and up 28% sequentially. Product revenue was $814 million, up 18% year-over-year and up 33% sequentially. License and royalty revenue was $121 million, down 8% year-over-year and up 1% sequentially.
• GAAP product gross profit was $315 million, or 39% of product revenue, compared to GAAP product gross loss of ($138) million, or (20%) of product revenue, in the third quarter of 2008 and GAAP product gross profit of $129 million, or 21% of product revenue, in the second quarter of 2009. Third quarter product gross profit included a $139 million benefit primarily from the sale of previously reserved inventory.
• Non-GAAP product gross profit was $320 million, or 39% of product revenue, compared to non-GAAP product gross loss of ($121) million, or (17%) of product revenue, in the third quarter of 2008 and non-GAAP product profit of $134 million, or 22% of product revenue, in the second quarter of 2009. Third quarter product gross profit included a $139 million benefit primarily from the sale of previously reserved inventory.
• GAAP operating profit was $240 million, or 26% of total revenue, compared to GAAP operating loss of ($250) million, or (30%) of total revenue, in the third quarter of 2008 and GAAP operating profit of $68 million, or 9% of total revenue, in the second quarter of 2009.
• Non-GAAP operating profit was $263 million, or 28% of total revenue, compared to non-GAAP operating loss of ($205) million, or (25%) of total revenue, in the third quarter of 2008 and non-GAAP operating profit of $94 million, or 13% of total revenue, in the second quarter of 2009.
• Total units sold increased 31% year-over-year and increased 45% sequentially.
• Gigabytes sold increased 107% year-over-year and increased 37% sequentially.
• Average price per gigabyte sold declined 43% year-over-year and declined 3% sequentially.
• Average retail card capacity was 4.22 gigabytes, an increase of 46% on a year-over-year basis and a decrease of 1% sequentially.

Other Recent Key Announcements

• SanDisk began shipping the industry’s first 8 gigabyte (GB) and 16GB SDHC and 8GB Memory Stick PRO Duo cards using four bits per cell memory technology.
• SanDisk began shipping the industry’s fastest SanDisk Extreme Pro Compact Flash memory card with read and write speeds up to 90 megabytes per second2 and with capacities ranging from 16GB to 64GB.
• SanDisk launched the Sansa Clip+ MP3 player that features a microSD memory card slot. The Sansa Clip+ MP3 player is fully compatible with SanDisk slotRadio and slotMusic cards, as well as any microSD card pre-loaded with music.