EX-99.1 2 f02377exv99w1.txt EXHIBIT 99.1 EXHIBIT 99.1 CONTACT: Investor Contact: Media Contact: Lori Barker Padon Mike Wong (408) 542-9565 (408) 548-0223 SANDISK ANNOUNCES THIRD QUARTER RESULTS REVENUES INCREASE 45% YEAR OVER YEAR AND OPERATING MARGIN AT 21% SUNNYVALE, CA, October 13, 2004 -- SanDisk Corporation (NASDAQ:SNDK), the world's largest supplier of flash storage card products, today announced results for the third quarter ended September 26, 2004. Third quarter total revenues increased 45% to $408 million compared to the third quarter of 2003 and decreased 6% from the second quarter of 2004. Third quarter net income was $54 million, compared to $15 million* and $71 million for the third quarter of 2003 and the second quarter of 2004, respectively. Earnings per share were $0.29 per diluted share compared with $0.09* per diluted share in the same quarter of 2003 and $0.38 per diluted share in the second quarter of 2004. "Industry wide supply of NAND flash memory increased at a faster rate than the increase in demand during the summer months. Although we sold a record numbers of units and megabytes, we experienced a steeper than expected average price per megabyte decline of 22% compared to the second quarter. This resulted in third quarter revenues 6% below the second quarter and product margins approximately 6 points below the second quarter and 1 point below the low end of our guidance at the beginning of the quarter. Despite aggressive price declines, we were able to generate 21% operating margins and $129 million in cash from operations for the quarter," said Eli Harari, President and CEO of SanDisk Corporation. "During the third quarter we introduced an array of exciting new products that are starting to ship this holiday season, including the world's fastest flash cards - our new line of SanDisk Extreme IIITM cards, and a new line of flash digital music players that we introduced yesterday and which we expect to become a major new product category for us. We continue to make steady inroads into mobile phones, and are shipping flash card bundles to Motorola, Sony Ericsson, Samsung Mobile, NEC and Siemens, among others. In the third quarter we shipped more than 1 million TransFlashTM modules, and we currently expect seven leading handset OEM's to introduce more than 40 handset models using TransFlashTM in 2005, " Harari added. "We are optimistic about global demand for our products in the traditionally strong fourth quarter. We have a front row seat in what we believe are some of the fastest growing markets in consumer electronics, mobile handsets, USB Flashdrives and digital music players. In the fourth quarter we expect to break for the first time the 10 cents per megabyte price point at the consumer level for our 512 megabyte and gigabyte capacity cards. This is one tenth of the price of flash cards just three years ago and represents a major milestone for flash storage, which we believe will accelerate the wide-scale adoption of our flash cards in numerous mobile and consumer applications. We expect to achieve this price point while maintaining our profitability through significant reductions in our captive production costs in the fourth quarter as we ramp up production of our newest, leading edge 90 nanometer NAND/MLC 4 gigabit Flash memory chips, which deliver significantly lower cost per megabyte than our current .13 micron production technology. With proper execution, we believe we are well positioned to exceed the $500 million quarterly revenue mark for the first time in the fourth quarter," said Harari. ADDITIONAL THIRD QUARTER FINANCIAL RESULTS AND HIGHLIGHTS o Product sales were $365 million, a growth of 41% year-over-year and a decrease of 7% sequentially. o Average price per megabyte sold in the third quarter declined 34% year-over-year and 22% sequentially. o Income from license and royalties increased to $43 million from $42 million in the second quarter. o Total gross margin was 36% of revenues compared to 40% in the third quarter of 2003 and 41% in the second quarter of 2004. o Product gross margin was 29%, compared to 35% in both the third quarter of 2003 and in the second quarter of 2004. o Operating income was $84 million, a growth of 25% year-over-year and a decline of 24% sequentially. Operating margins were 21%, compared to 25% in the prior quarter. o Cash flow from operations was $129 million. o Total megabytes sold in the third quarter were a record and increased 115% year-over-year and 20% sequentially. o Average density per card sold in retail increased sequentially to 254MB from 236MB. o OEM sales grew to 22% of product revenues from 19% in the prior quarter with strength in the mobile handset market. o The TransFlashTM mobile module sold over one million units during the quarter. o SanDisk Ultra(R)II high performance cards took top awards in independent performance tests and the Ultra products were among our fastest growing products. o SanDisk global brand advertising campaign expanded to North American TV advertising during the 2004 Athens Olympics. o M-Systems and SanDisk signed a strategic collaboration and patent cross licensing agreement to jointly develop and promote a new USB Flash Drive platform. o Toshiba and SanDisk signed an agreement for the new 300mm NAND Fab at Toshiba's Yokkaichi facility currently scheduled to start production late in 2005. CONFERENCE CALL AND GUIDANCE SanDisk's third quarter 2004 conference call with guidance is scheduled for 2:00 p.m. Pacific Time, Wednesday, October 13 2004. Today's teleconference prepared remarks, including fourth quarter guidance, will be posted to http://www.corporate-ir.net/ireye/ir_site.zhtml?ticker=sndk&script=2100. The conference call will be web cast by CCBN and can be accessed live, and throughout the quarter, at SanDisk's website at www.sandisk.com/IR and at www.streetevents.com for registered streetevents.com users. To participate in the call via telephone, the dial in number is (800) 811-7286 or (913) 981-4902 for international callers. The call will also be available by telephone replay through Sunday, October 17, 2004, by dialing (888) 203-1112 or, for international callers, (719) 457-0820 and entering the pass code 861151. A copy of this press release will be filed with the Securities and Exchange Commission on a current report on Form 8-K and will be posted to our website prior to the conference call. SCHEDULED INTERVIEW SanDisk Corporation President and CEO, Eli Harari, is scheduled to appear on CNBC's "Closing Bell With Maria Bartiromo" today, Wednesday, October 13, 2004 at approximately 4:20 p.m. Eastern Time to discuss the company's expanding product lines and growth prospects. FORWARD-LOOKING STATEMENTS This news release contains certain forward-looking statements, including our business outlook, expectations for new product introductions and new customers, future revenues, average selling prices, gross margins, operating expenses, capital equipment expenditures and tax rates that are based on our current expectations and involve numerous risks and uncertainties that may cause these forward-looking statements to be inaccurate and may significantly and adversely affect our business, financial condition and results of operations. Risks that may cause these forward-looking statements to be inaccurate include among others: market demand for our products may grow more slowly than our expectations or a slower adoption rate for these products in new markets that we are targeting, fluctuations in operating results, unexpected yield variances and longer than expected low yields and other possible delays related to our conversion to 90-nanometer NAND flash technology, any interruption of or delay in supply from any of the semiconductor manufacturing facilities that supply products to us, our inability to make additional planned smaller geometry conversions in a timely manner, future average selling price erosion that may be more severe than our expectations due to possible excess industry capacity of flash memory either from existing suppliers or from new competitors, price increases from non-captive flash memory sources and third-party subcontractors, higher than expected operating expenses, higher than anticipated capital, adverse global economic and geo-political conditions, including adverse currency exchange rates and acts of terror, the timely development, internal qualification and customer acceptance of new products that are based on the 90-nanometer and 70-nanometer NAND technologies, fluctuations in license and royalty revenues, higher than anticipated tax rates, regulatory duties or fees, business interruption due to earthquakes or other natural disasters, particularly in areas in the Pacific Rim and Japan where we manufacture and assemble products, further impairment of our investments in Tower Semiconductor Ltd. due to any decline in stock valuations, and the other risks detailed from time-to-time in our Securities and Exchange Commission filings and reports, including, but not limited to, the Form 10-K for the year ended December 28, 2003 and our quarterly reports on Form 10-Q. Future results may differ materially from those previously reported. We do not intend to update the information contained in this release. ABOUT SANDISK SanDisk Corporation, the world's largest supplier of flash storage card products, designs, manufactures and markets industry-standard, solid-state data, digital imaging and audio storage products using its patented, high-density flash memory and controller technology. SanDisk is based in Sunnyvale, CA. www.sandisk.com *Includes a net loss on unauthorized sales of UMC shares of $36 million. SANDISK AND SANDISK ULTRA ARE TRADEMARKS OF SANDISK CORPORATION, REGISTERED IN THE UNITED STATES AND OTHER COUNTRIES. SANDISK EXTREME AND TRANSFLASH ARE TRADEMARKS OF SANDISK CORPORATION. OTHER BRAND NAMES MENTIONED HEREIN ARE FOR IDENTIFICATION PURPOSES ONLY AND MAY BE THE TRADEMARKS OF THEIR RESPECTIVE HOLDERS. SanDisk Corporation Condensed Consolidated Statements of Income (In thousands, except per share data, unaudited)
Three Months Ended Nine Months Ended ------------------------------ ------------------------------ September 26, September 28, September 26, September 28, 2004 2003 2004 2003 ------------- ------------- ------------- ------------- Revenues: Product $ 365,033 $ 259,446 $ 1,095,139 $ 628,938 License and royalty 42,921 21,954 133,033 61,568 ----------- ----------- ----------- ----------- Total revenue 407,954 281,400 1,228,172 690,506 Cost of product revenues 260,573 167,765 746,220 416,508 ----------- ----------- ----------- ----------- Gross profits 147,381 113,635 481,952 273,998 Operating expenses: Research and development 30,184 22,010 89,414 58,937 Sales and marketing 20,863 16,899 65,466 45,066 General and administrative 12,651 7,923 34,499 21,847 ----------- ----------- ----------- ----------- Total operating expenses 63,698 46,832 189,379 125,850 Operating income 83,683 66,803 292,573 148,148 Equity in income of joint ventures 102 51 516 90 Interest income 5,339 1,611 13,539 5,622 Interest expense (1,690) (1,688) (5,065) (5,063) (Loss) gain in investment in foundries (399) 6,662 (950) 3,079 Loss on unauthorized sale of UMC shares -- (18,339) -- (18,339) Gain (loss) in equity investment -- 4,352 -- (148) Other loss, net (1,438) (149) (1,755) (1,004) ----------- ----------- ----------- ----------- Total other income (expense) 1,914 (7,500) 6,285 (15,763) Income before taxes 85,597 59,303 298,858 132,385 Provision for income taxes 31,495 44,533 110,577 51,364 ----------- ----------- ----------- ----------- Net income $ 54,102 $ 14,770 $ 188,281 $ 81,021 =========== =========== =========== =========== NET INCOME PER SHARE CALCULATION: Net income used in computing basic net income per share $ 54,102 $ 14,770 $ 188,281 $ 81,021 Tax-effected interest and bond amortization costs related to convertible subordinated notes 1,202 475 3,612 3,939 ----------- ----------- ----------- ----------- Net income used in computing diluted net income per share $ 55,304 $ 15,245 $ 191,893 $ 84,960 =========== =========== =========== =========== Shares used in computing net income per share Basic 162,425 141,461 161,796 139,747 Diluted 188,562 171,562 188,903 165,404 Net income per share Basic $ 0.33 $ 0.10 $ 1.16 $ 0.58 Diluted $ 0.29 $ 0.09 $ 1.02 $ 0.51
SanDisk Corporation Condensed Consolidated Balance Sheets (In thousands)
September 26, 2004 June 27, 2004 December 28, 2003* ASSETS (unaudited) (unaudited) ----------- ----------- ----------- Current Assets: Cash and cash equivalents $ 602,183 $ 613,964 $ 734,479 Short-term investments 748,830 686,599 528,117 Investment in foundries 23,541 30,294 36,976 Accounts receivable, net 136,156 198,817 184,236 Inventories 181,329 163,487 116,896 Deferred tax asset 94,827 70,806 70,806 Other receivable 11,250 11,274 11,352 Prepaid expenses, other current assets and tax receivable 18,559 48,946 42,042 ----------- ----------- ----------- Total Current Assets 1,816,675 1,824,187 1,724,904 Property and equipment, net 137,663 69,327 59,470 Investment in foundries 22,599 43,985 40,446 Investment in FlashVision 146,164 145,671 144,616 Deferred tax asset -- 7,927 7,927 Other receivable 25,313 28,100 33,751 Note receivable, related party 32,969 21,895 -- Deposits and other non-current assets 10,747 8,659 12,400 ----------- ----------- ----------- Total Assets $ 2,192,130 $ 2,149,751 $ 2,023,514 =========== =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY: Current Liabilities: Accounts payable $ 113,949 $ 78,830 $ 88,737 Accounts payable to related parties 55,438 51,083 45,013 Accrued payroll and related expenses 30,026 28,518 28,233 Income taxes payable 2,467 11,483 37,254 Research and development liability, related party 9,700 13,900 11,800 Other accrued liabilities 37,248 36,872 36,661 Deferred income on shipments to distributors and retailers and deferred revenue 96,290 122,353 99,136 ----------- ----------- ----------- Total Current Liabilities 345,118 343,039 346,834 Convertible subordinated notes payable 150,000 150,000 150,000 Deferred tax liability 2,971 -- -- Other liabilities 1,411 1,287 511 Deferred revenue 21,426 23,030 25,481 ----------- ----------- ----------- Total Liabilities 520,926 517,356 522,826 Commitments and Contingencies Stockholders' Equity: Preferred stock -- -- -- Common stock 1,230,990 1,216,831 1,207,958 Retained earnings 441,905 387,803 253,624 Accumulated other comprehensive income (776) 27,761 39,106 Deferred compensation (915) -- -- ----------- ----------- ----------- Total Stockholders' Equity 1,671,204 1,632,395 1,500,688 ----------- ----------- ----------- Total Liabilities and Stockholders' Equity $ 2,192,130 $ 2,149,751 $ 2,023,514 =========== =========== ===========
*Information derived from the audited Consolidated Financial Statements. SANDISK CORPORATION Condensed Consolidated Statement of Cash Flows (in thousands)
Three Months Ended Nine Months Ended ------------------------------ ------------------------------ September 26, September 28, September 26, September 28, 2004 2003 2004 2003 ------------- ------------- ------------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 54,102 $ 14,770 $ 188,281 $ 81,021 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 9,808 6,233 26,410 16,154 Deferred taxes 8,070 16,923 8,587 2,152 Loss on authorized sale of UMC shares -- 18,339 -- 18,339 Loss (gain) investment in foundries 399 (6,662) 950 (3,079) Loss (gain) on equity investment -- (4,352) -- 148 Equity in income of joint ventures (102) (51) (516) (90) Deferred compensation (915) -- (915) -- Other non-cash adjustments 792 691 3,373 1,743 Changes in operating assets and liabilities: Accounts receivable 62,089 (37,921) 45,238 (59,748) Inventories (17,842) (20,279) (64,433) (6,164) Other current and non-current assets 30,242 10,805 31,815 6,696 Accounts payable 35,119 23,543 25,212 50,591 Accrued payroll and related expenses 1,508 4,242 1,793 6,790 Income taxes payable (28,099) 13,651 (56,207) 16,355 Other current liabilities, related party 4,355 2,319 10,425 11,450 Research and development liabilities, related parties (4,200) 2,000 (2,100) (4,007) Deferred revenue and other liabilities (26,041) 21,304 (5,288) 23,588 --------- --------- --------- --------- Total adjustments 75,183 50,785 24,344 80,918 --------- --------- --------- --------- Net cash provided by operating activities 129,285 65,555 212,625 161,939 --------- --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of short term investments (276,460) (154,703) (921,389) (315,865) Proceeds from sale of short term investments 215,332 60,223 699,246 175,545 Proceeds from sale of equity investment -- 4,352 -- 4,352 Investment in foundries (70) (682) (70) (4,282) Note receivable, related party (11,074) -- (32,969) -- Proceeds from sale of shares of investment in foundries -- 21,627 -- 21,627 Acquisition of capital equipment (76,123) (17,813) (106,081) (42,908) Investment in technology (1,998) -- (1,998) -- Proceeds of sale of fixed assets -- 399 140 528 --------- --------- --------- --------- Net cash used in investing activities (150,393) (86,597) (363,121) (161,003) --------- --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Sale of common stock 9,327 29,349 18,200 35,766 --------- --------- --------- --------- Net cash provided by financing activities 9,327 29,349 18,200 35,766 --------- --------- --------- --------- Net increase (decrease) in cash and cash equivalents (11,781) 8,307 (132,296) 36,702 Cash and cash equivalents at beginning of period 613,964 249,180 734,479 220,785 --------- --------- --------- --------- Cash and cash equivalents at end of period $ 602,183 $ 257,487 $ 602,183 $ 257,487 ========= ========= ========= ========= ADDITIONAL INFORMATION: Net change in cash and cash equivalents $ (11,781) $ 8,307 $(132,296) $ 36,702 Net change in short-term investments 62,231 94,381 220,713 139,770 --------- --------- --------- --------- Net change in cash, cash equivalents and short-term investments $ 50,450 $ 102,688 $ 88,417 $ 176,472 ========= ========= ========= =========