SanDisk: Fiscal 1Q11 Financial Results

(in US$ millions)	1Q10	1Q11
Revenues	1,087	1,294
*Growth*		19%
Net income (loss)	234.7	224.1

SanDisk Corporation announced results for the first fiscal quarter ending April 3, 2011.

Total first quarter revenue of $1.29 billion increased 19% on a year-over-year basis and decreased 3% on a sequential basis. First quarter net income, in accordance with U.S. Generally Accepted Accounting Principles (GAAP), was $224 million, or $0.92 per diluted share, compared to net income of $235 million, or $0.99 per diluted share in the first quarter of fiscal 2010 and $485 million, or $2.01 per diluted share, in the fourth quarter of fiscal 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 convertible debt and related tax adjustments, first-quarter net income was $251 million, or $1.03 per diluted share, compared to net income of $225 million, or $0.95 per diluted share, in the first quarter of fiscal 2010 and net income of $307 million, or $1.27 per diluted share, in the fourth quarter of fiscal 2010. For reconciliation of non-GAAP to GAAP results, see accompanying financial tables and footnotes.

"Our embedded mobile business drove growth in the first quarter, and SanDisk executed well to deliver strong business results," said Sanjay Mehrotra, President and CEO. "We have been actively managing our supply chain following the recent events in Japan and believe we remain on track to deliver a strong 2011 for SanDisk."

Key Financial Metrics

Total first quarter revenue was $1.29 billion, up 19% year-over-year and down 3% sequentially.
Cash flow from operations in the first quarter was $399 million and free cash flow was $121 million.
Total cash and cash equivalents and short and long-term marketable securities at the end of the first quarter of fiscal 2011 was $5.51 billion compared to $3.30 billion at the end of the first quarter of fiscal 2010 and $5.34 billion at the end of the fourth quarter of fiscal 2010.

Other Highlights

SanDisk announced its 19-nanometer technology node, the industry’s most advanced process technology for NAND flash memory. The new manufacturing technology will produce the smallest NAND flash memory chips in the world, enabling SanDisk to deliver embedded and removable storage devices with the high capacities and small form factors used in mobile phones, tablets and other devices.
SanDisk announced its next generation of iNAND and iNAND Ultra embedded flash drives (EFDs) supporting the eMMC interface. Available in capacities up to 64 gigabytes (GB) of storage in a 12mm x 16mm JEDEC standard package, iNAND products enable slimmer and more compact smartphone and tablet designs. SanDisk also offers an integrated solid state drive (iSSD), the world’s smallest 64 gigabytes SSD in a BGA (Ball Grid Array) package supporting the SATA interface.
SanDisk, through its HQME (High Quality Mobile Experience) initiative, along with other leading companies from throughout the mobile ecosystem, launched a proposed industry standardization effort aimed at addressing the current and growing challenges of efficiently managing and delivering data from mobile networks to mobile devices. This initiative leverages local storage and intelligent content caching designed to relieve network congestion and accelerate data delivery to the mobile device.

Comments

Abstracts of the earnings call transcript:

Sanjay Mehrotra, president and CEO:

"On March 11, Japan suffered a major earthquake and a series of significant follow-on events. Our prayers go to those impacted by these events. Fortunately for SanDisk, our employees and their families in Japan were unharmed. In addition, our joint venture wafer fabs in Yokkaichi were relatively unaffected, as they were approximately 500 miles from the quake's epicenter. The earthquake halted normal fab operations for less than a day. The fabs have not been subject to rolling power outages or blackouts. We have been working closely with Toshiba as well as other business partners in Japan to minimize the impact to our NAND flash wafer production.

"We did suffer a modest loss of supply due to the downtime from the power outage and earthquake. In addition, we expect some earthquake-related delays in tool deliveries from certain suppliers in Japan that will affect our expected 2011 captive supply growth. Overall, we project a slight reduction in plant captive supply growth from the mid-80% range we estimated previously for 2011. We continue our efforts to maximize captive output and evaluate prudent use of non-captive supply.

"From a captive capacity perspective, we completed the expansion of Fab 4 in the first quarter, and that facility is now operating at its full capacity. We expect minimal delay in the timing of the ramp of Fab 5. And the new facility should begin augmenting our overall captive supply in the second half of this year."

Judy Bruner, CFO:

"Our gigabytes sold grew 7% sequentially, while ASP per gigabyte declined 8%. And on a year-over-year basis, gigabytes sold increased 78% and ASP per gigabyte declined 32%.

"Our sequential price decline of 8% was modest for a first quarter and was influenced by mix, with OEM growing to 66% of sales from 59% in Q4 and USB mix increasing seasonality within retail.

"Our estimate of the industry-pricing environment for Q2 is stronger than in our original forecast for the year, and this partially offsets the impact of a supply constraint. We forecast Q2 total revenue to be between $1.3 billion and $1.35 billion."