SanDisk: Fiscal 2Q10 Financial Results

(in US$ millions)	2Q09	2Q10	6 mo. 09	6 mo. 10
Revenues	730.6	1,179	1,390	2,266
*Growth*		61%		*63%*
Net income (loss)	52.5	257.9	(155.4)	492.6

SanDisk Corporation announced results for the second quarter ended July 4, 2010.

Total second quarter revenue of $1.18 billion increased 61% on a year-over-year basis and increased 9% on a sequential basis. Net income, in accordance with U.S. Generally Accepted Accounting Principles (GAAP), was $258 million, or $1.08 per diluted share, compared to GAAP net income of $53 million, or $0.23 per diluted share, in the second quarter of 2009 and GAAP net income of $235 million, or $0.99 per diluted share, in the first quarter of 2010.

On a non-GAAP basis, which excludes the impact of share-based compensation expense, amortization of acquisition-related intangible assets, non-cash economic interest expense associated with the cash-settled convertible note, and related tax adjustments and valuation allowance, second-quarter net income was $258 million, or $1.08 per diluted share, compared to net income of $83 million, or $0.36 per diluted share, in the second quarter of 2009 and net income of $225 million, or $0.95 per diluted share, in the first quarter of 2010.

"SanDisk delivered another excellent quarter, with OEM demand driving record unit and gigabytes sold. We achieved 47% total gross margin, due to cost reductions and a stable pricing environment. We exited the quarter with a record high cash balance of $3.7 billion or $2.6 billion net of debt. For the second half of the year, demand from our diversified customer base is very strong. We expect our recent announcement of our Fab 5 joint venture with Toshiba to allow us to meet our customers’ growing demand for flash in the coming years", said Eli Harari, Chairman and CEO of SanDisk.

2Q10 Metrics and Highlights

Total revenue was $1.18 billion, up 61% year-over-year and up 9% sequentially.
Product revenue was $1.09 billion, up 79% year-over-year and up 10% sequentially.
License and royalty revenue was $88 million, down 27% year-over-year and down 6% sequentially.
Cash flow from operations was $385 million and free cash flow was $363 million.
Total cash and equivalents, short and long-term marketable securities at the end of the second quarter were $3.7 billion compared to $2.3 billion at the end of the second quarter of 2009 and $3.3 billion at the end of the first quarter of 2010.
Average price per gigabyte sold declined 18% on a year-over-year basis and declined 8% sequentially.

Comments

Abstracts of the earnings call transcript:

Judy Bruner, executive VP of administration and CFO:
"Our license and royalty revenue was in the range we forecasted with a 27% year-over-year decline reflecting the current Samsung license agreement. Our Q2 product revenue channel mix was 65% OEM and 35% retail. Our retail revenue grew 3% sequentially and 7% year-over-year with the strongest retail growth coming from the imaging market.
"Our OEM revenue grew 14% sequentially and 181% year-over-year with the strongest growth coming from the mobile market. Across all channels, the mobile market generated 48% of our Q2 revenue.
"Our gigabytes sold grew 18% sequentially and 116% year-over-year.
"We expect Q3 total revenue to be between $1.175 billion and $1.25 billion. Within this total Q3 revenue we forecast license and royalty revenue to be between $90 million and $100 million. Despite supply constraints we are raising our full-year revenue estimate.
"Recall we started this year with an estimate of $4 billion to $4.4 billion in revenue and after Q1 we raised that range to $4.5 billion to $4.8 billion. We now expect total revenue to be between $4.7 billion and $4.9 billion for 2010 including license and royalty revenue between $360 million and $375 million."