EX-99.1 2 f42282exv99w1.htm EXHIBIT 99.1 exv99w1
Exhibit 99.1
(SANDISK LOGO)
SanDisk Corporation
601 McCarthy Boulevard
Milpitas, CA 95035-7932
Phone: 408-801-1000
Fax: 408-801-8657
         
CONTACT:
  Investor Contacts:   Media Contact:
 
  Lori Barker Padon   Mike Wong
 
  (408) 801-1384   (408) 801-1240
 
        
 
  Jay Iyer    
 
  (408) 801-2067    
SANDISK ANNOUNCES SECOND QUARTER FINANCIAL RESULTS
— Reducing Future Supply Growth and Capital Expenditures —
Milpitas, CA, July 21, 2008 — SanDisk® Corporation (NASDAQ:SNDK), the world’s largest supplier of flash storage card products, today announced results for the second quarter ended June 29, 2008, as well as steps to slow its supply growth. Total second-quarter revenue was $816 million, a decrease of 1% on a year-over-year basis. Net loss in accordance with U.S. Generally Accepted Accounting Principles (GAAP) was ($68) million, or ($0.30) per diluted share, compared to GAAP net income of $28 million, or $0.12 per diluted share, in the second quarter of 2007.
Excluding the impact of acquisition-related charges, share-based compensation expense and the related tax effect, the second quarter non-GAAP net loss was ($22) million, or ($0.10) per diluted share, compared to the second quarter 2007 non-GAAP net income of $72 million, or $0.30 per diluted share.
SanDisk is delaying the start of the next phase of production ramp in Fab 4 and now expects it to start no sooner than April 2009. The company is also pushing out its decision to invest in Fab 5 until market conditions improve. These actions are aimed at reducing future capital expenditures and inventory growth in order to maintain a strong balance sheet.
“Our second quarter sales were well below our expectations due to the rapid deterioration in consumer confidence which impacted our sales in U.S. retail and to handset OEMs. Product gross margin was negatively impacted by the lower sales volume and a substantial inventory write-down,” said Eli Harari, Chairman and CEO. “Overall demand is expected to improve in the upcoming holiday season; however, industry-wide Flash inventories remain excessive and pricing and margins will therefore remain under pressure until supply and demand come into balance. We are taking significant actions to slow our captive supply growth, which will reduce

 

 

our capital expenditure commitments, and allow us to better manage our inventory. We are also continuing to improve our cost structure through transitions to 43-nanometer MLC and the industry’s first commercialized 3-bits per cell NAND flash. While the industry downturn has been more pronounced and severe than expected, we are optimistic about our long-term renewed growth when the market rebounds.”
Key Metrics for Second Quarter of 2008
•   Product revenue was $688 million, down 5% year-over-year.
 
•   License and royalty revenue was $129 million, up 20% year-over-year.
 
•   Total megabytes sold in the second quarter were a record and increased 120% year-over-year and 14% from the first quarter of 2008.
 
•   Average price per megabyte sold declined 55% on a year-over-year basis and 15% sequentially.
 
•   Average retail card capacity of 2.36 gigabytes increased 64% on a year-over-year basis and 15% sequentially.
 
•   GAAP product gross margin was 3.3% compared to 16.2% in the second quarter of 2007. Non-GAAP product gross margin was 5.7% compared to 19.0% in the second quarter of 2007.
 
•   Operating loss, on a GAAP basis, was ($101) million, or (12%) of revenue compared to GAAP operating income of $14 million, or 2% in the second quarter of 2007. Non-GAAP operating loss was ($57) million, or (7%) of revenue, compared to operating income of $74 million, or 9% of revenue, in the second quarter of 2007.
 
•   SanDisk introduced a line of flash memory-based solid state drives (SSDs) for an emerging new category of laptops — Ultra Low-Cost PCs (ULCPC).
 
•   SanDisk launched the first premium memory cards for mobile phones to increase capacity and provide fast transfer speeds for music, maps, videos, photos, and games.
 
•   SanDisk and Toshiba signed a strategic agreement to jointly develop and commercialize three dimensional (3D) rewritable memory.
Scheduled Interview
SanDisk Corporation Chairman and Chief Executive Officer, Eli Harari, is scheduled to appear on CNBC’s “Closing Bell with Maria Bartiromo,” on July 21, 2008 at approximately 1:20 p.m. P.D.T.
Conference Call
SanDisk’s second quarter 2008 conference call is scheduled for 2:00 p.m. P.D.T., Monday, July 21, 2008. The conference call will be webcast 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 (913) 312-1402. The dial-in password is 9538040. A copy of this press release will be furnished to 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.
A complete reconciliation between GAAP and non-GAAP information referred to in this release is provided in the attached tables.
Forward-Looking Statements
This news release contains certain forward-looking statements, including statements about our business prospects and outlook, anticipated increased demand for products, anticipated price and

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margin declines, the expected cost benefits of 43-nanometer and 3-bit per cell manufacturing output in the second half of 2008, our plans for Fab 4 and our potential investment in Fab 5, the anticipated emergence of new markets for Flash storage and our long-term prospects, 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:
  •   slower than expected, or no, growth in market demand for our products including our solid state drives, or a slower adoption rate for our products in current and new markets that we are targeting including the mobile phone market,
 
  •   future average selling price erosion that may be more severe than our expectations due to decreased demand or excess industry supply of flash memory from ourselves as well as from existing suppliers or from new competitors,
 
  •   continued excess industry-wide supply to meet demand,
 
  •   adverse global economic and geo-political conditions, including continued declines in the global economy, particularly in the U.S. and Europe, or continued adverse currency exchange rates particularly related to the Japanese yen,
 
  •   any interruption of or delay in supply from any of the semiconductor manufacturing or subcontracting facilities, including test and assembly facilities that supply products to us,
 
  •   slower than expected expansion of our global sales channels,
 
  •   fluctuations in operating results, unexpected yield variances and delays related to our conversion to 43-nanometer NAND flash technology or the ramp-up of the 300-millimeter flash fabrication facility,
 
  •   unexpected yield variances in, or delays related to the ramp-up of, 3-bits per cell manufacturing,
 
  •   lower than expected growth in the average megabyte capacity per card,
 
  •   fluctuations in license and royalty revenues,
 
  •   higher than anticipated operating expenses,
 
  •   inability to purchase sufficient non-captive supply on favorable terms, or at all,
 
  •   lower margins due to increased use of non-captive supply,
 
  •   failure to develop commercially viable rewritable 3D memory technology in a timely and cost-effective manner,
 
  •   business interruption due to earthquakes, hurricanes or other natural disasters, particularly in areas in the Pacific Rim and Japan where we manufacture and assemble products,
 
  •   adverse results in litigation or regulatory actions affecting us, and
 
  •   other risks detailed from time-to-time under the caption “Risk Factors” and elsewhere in our Securities and Exchange Commission filings and reports, including, but not limited to, our Annual Report on Form 10-K for the fiscal year ended December 30, 2007 and our Forms 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 inventor and world’s largest supplier of flash storage cards, is a global leader in flash memory — from research, manufacturing and product design to consumer branding and retail distribution. SanDisk’s product portfolio includes flash memory cards for mobile phones, digital cameras and camcorders, digital audio/video players, USB flash drives for consumers and the enterprise, embedded memory for mobile devices, and solid state drives for computers. SanDisk (www.sandisk.com/corporate) is a Silicon Valley-based S&P 500 company, with more than half its sales outside the United States.
SanDisk, and the SanDisk logo are trademarks of SanDisk Corporation, registered in the United States and other countries.

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SanDisk Corporation
Preliminary Condensed Consolidated Statements of Operations
(in thousands, except per share amounts, unaudited)
                                 
    Three months ended     Six months ended  
    June 29, 2008     July 1, 2007     June 29, 2008     July 1, 2007  
Revenues:
                                
Product
   $ 687,508     $ 719,991     $ 1,411,559     $ 1,409,348  
License and royalty
     128,503       107,041       254,419       203,770  
 
                        
Total revenues
     816,011       827,032       1,665,978       1,613,118  
 
                                
Cost of product revenues
     650,558       588,736       1,227,162       1,158,824  
Amortization of acquisition-related intangible assets
     14,582       14,583       29,164       35,645  
 
                        
Total cost of product revenues
     665,140       603,319       1,256,326       1,194,469  
 
                        
Gross profit
     150,871       223,713       409,652       418,649  
 
                                
Operating expenses:
                                
Research and development
     112,143       101,185       223,577       196,825  
Sales and marketing
     77,638       60,517       157,794       116,723  
General and administrative
     53,684       41,165       111,488       88,156  
Restructuring
     4,085       212       4,085       6,728  
Amortization of acquisition-related intangible assets
     4,553       7,050       9,028       16,150  
 
                        
Total operating expenses
     252,103       210,129       505,972       424,582  
 
                        
Operating income (loss)
     (101,232 )     13,584       (96,320 )     (5,933 )
Total other income
     20,542       38,556       46,424       74,815  
 
                        
Income (loss) before provision (benefit) for income taxes
     (80,690 )     52,140       (49,896 )     68,882  
Provision (benefit) for income taxes
     (12,813 )     23,605       101       35,762  
 
                        
Income (loss) after taxes
     (67,877 )     28,535       (49,997 )     33,120  
Minority interest
     —       51       —       5,211  
 
                        
Net income (loss)
   $ (67,877 )   $ 28,484     $ (49,997 )   $ 27,909  
 
                        
 
                                
Net income (loss) per share calculation:
                                
Net income (loss) used in computing basic net income (loss) per share
   $ (67,877 )   $ 28,484     $ (49,997 )   $ 27,909  
Tax-effected interest costs related to convertible long-term debt
     —       116       —       232  
 
                        
Net income (loss) used in computing diluted net income (loss) per share
   $ (67,877 )   $ 28,600     $ (49,997 )   $ 28,141  
 
                        
 
                                
Net income (loss) per share:
                                
Basic
   $ (0.30 )   $ 0.12     $ (0.22 )   $ 0.12  
Diluted
   $ (0.30 )   $ 0.12     $ (0.22 )   $ 0.12  
 
                                
Shares used in computing net income (loss) per share:
                                
Basic
     224,888       227,959       224,703       227,707  
Diluted
     224,888       236,036       224,703       235,951  

 

 

SanDisk Corporation
Reconciliation of GAAP to Non-GAAP Operating Results (1)
(in thousands, except per share data, unaudited)
                                 
    Three months ended     Six months ended  
    June 29, 2008     July 1, 2007     June 29, 2008     July 1, 2007  
SUMMARY RECONCILIATION OF NET INCOME (LOSS)
                                
GAAP NET INCOME (LOSS)
   $ (67,877 )   $ 28,484     $ (49,997 )   $ 27,909  
Adjustments:
                                
Share-based compensation (a)
     25,108       36,971       48,334       68,190  
Amortization of acquisition-related intangible assets (b)
     19,135       21,633       38,192       51,795  
Inventory step-up expense related to msystems acquisition (c)
     —       2,119       —       7,066  
Income tax adjustments (d)
     1,293       (17,364 )     (11,084 )     (38,283 )
 
                        
NON-GAAP NET INCOME (LOSS)
   $ (22,341 )   $ 71,843     $ 25,445     $ 116,677  
 
                        
 
                                
GAAP COST OF PRODUCT REVENUES
   $ 665,140     $ 603,319     $ 1,256,326     $ 1,194,469  
Share-based compensation (a)
     (2,009 )     (3,307 )     (5,638 )     (6,521 )
Amortization of acquisition-related intangible assets (b)
     (14,582 )     (14,583 )     (29,164 )     (35,645 )
Inventory step-up expense related to msystems acquisition (c)
     —       (2,119 )     —       (7,066 )
 
                        
NON-GAAP COST OF PRODUCT REVENUES
   $ 648,549     $ 583,310     $ 1,221,524     $ 1,145,237  
 
                        
 
                                
GAAP GROSS PROFIT
   $ 150,871     $ 223,713     $ 409,652     $ 418,649  
Share-based compensation (a)
     2,009       3,307       5,638       6,521  
Amortization of acquisition-related intangible assets (b)
     14,582       14,583       29,164       35,645  
Inventory step-up expense related to msystems acquisition (c)
     —       2,119       —       7,066  
 
                        
NON-GAAP GROSS PROFIT
   $ 167,462     $ 243,722     $ 444,454     $ 467,881  
 
                        
 
                                
GAAP RESEARCH AND DEVELOPMENT EXPENSES
   $ 112,143     $ 101,185     $ 223,577     $ 196,825  
Share-based compensation (a)
     (9,324 )     (13,013 )     (18,150 )     (25,700 )
 
                        
NON-GAAP RESEARCH AND DEVELOPMENT EXPENSES
   $ 102,819     $ 88,172     $ 205,427     $ 171,125  
 
                        
 
                                
GAAP SALES AND MARKETING EXPENSES
   $ 77,638     $ 60,517     $ 157,794     $ 116,723  
Share-based compensation (a)
     (6,423 )     (10,361 )     (9,934 )     (17,284 )
 
                        
NON-GAAP SALES AND MARKETING EXPENSES
   $ 71,215     $ 50,156     $ 147,860     $ 99,439  
 
                        
 
                                
GAAP GENERAL AND ADMINISTRATIVE EXPENSES
   $ 53,684     $ 41,165     $ 111,488     $ 88,156  
Share-based compensation (a)
     (7,352 )     (10,290 )     (14,612 )     (18,685 )
 
                        
NON-GAAP GENERAL AND ADMINISTRATIVE EXPENSES
   $ 46,332     $ 30,875     $ 96,876     $ 69,471  
 
                        
 
                                
GAAP TOTAL OPERATING EXPENSES
   $ 252,103     $ 210,129     $ 505,972     $ 424,582  
Share-based compensation (a)
     (23,099 )     (33,664 )     (42,696 )     (61,669 )
Amortization of acquisition-related intangible assets (b)
     (4,553 )     (7,050 )     (9,028 )     (16,150 )
 
                        
NON-GAAP TOTAL OPERATING EXPENSES
   $ 224,451     $ 169,415     $ 454,248     $ 346,763  
 
                        
 
                                
GAAP OPERATING INCOME (LOSS)
   $ (101,232 )   $ 13,584     $ (96,320 )   $ (5,933 )
Cost of product revenues adjustments (a) (b) (c)
     16,591       20,009       34,802       49,232  
Operating expense adjustments (a) (b)
     27,652       40,714       51,724       77,819  
 
                        
NON-GAAP OPERATING INCOME (LOSS)
   $ (56,989 )   $ 74,307     $ (9,794 )   $ 121,118  
 
                        
 
                                
GAAP NET INCOME (LOSS)
   $ (67,877 )   $ 28,484     $ (49,997 )   $ 27,909  
Cost of product revenues adjustments (a) (b) (c)
     16,591       20,009       34,802       49,232  
Operating expense adjustments (a) (b)
     27,652       40,714       51,724       77,819  
Income tax adjustments (d)
     1,293       (17,364 )     (11,084 )     (38,283 )
 
                        
NON-GAAP NET INCOME (LOSS)
   $ (22,341 )   $ 71,843     $ 25,445     $ 116,677  
 
                        
 
                                
Net income (loss) per share calculation: GAAP
                                
Net income (loss) used in computing basic GAAP net income per share
   $ (67,877 )   $ 28,484     $ (49,997 )   $ 27,909  
Tax-effected interest costs related to convertible long-term debt
     —       116       —       232  
 
                        
Net income (loss) used in computing diluted net income per share
   $ (67,877 )   $ 28,600     $ (49,997 )   $ 28,141  
 
                        
 
                                
Net income (loss) per share calculation: Non-GAAP
                                
Net income (loss) used in computing basic Non-GAAP net income per share
   $ (22,341 )   $ 71,843     $ 25,445     $ 116,677  
Tax-effected interest costs related to convertible long-term debt
     —       116       —       232  
 
                        
Net income (loss) used in computing diluted net income per share
   $ (22,341 )   $ 71,959     $ 25,445     $ 116,909  
 
                        
 
                                
Diluted net income (loss) per share:
                                
GAAP
   $ (0.30 )   $ 0.12     $ (0.22 )   $ 0.12  
Non-GAAP
   $ (0.10 )   $ 0.30     $ 0.11     $ 0.49  
 
                                
Shares used in computing diluted net income (loss) per share:
                                
GAAP
     224,888       236,036       224,703       235,951  
Non-GAAP
     224,888       236,855       227,703       236,649  

 

 

SanDisk Corporation
Reconciliation of GAAP to Non-GAAP Operating Results (1)
(1)   To supplement our consolidated financial statements presented in accordance with generally accepted accounting principles (GAAP), we use non-GAAP measures of operating results, net income and earnings per share, which are adjusted from results based on GAAP to exclude certain expenses, gains and losses. These non-GAAP financial measures are provided to enhance the user’s overall understanding of our current financial performance and our prospects for the future. Specifically, we believe the non-GAAP results provide useful information to both management and investors as these non-GAAP results exclude certain expenses, gains and losses that we believe are not indicative of our core operating results and because it is consistent with the financial models and estimates published by many analysts who follow the Company. For example, because the non-GAAP results exclude the expenses we recorded for share-based compensation in accordance with SFAS 123(R) effective January 2, 2006 and the acquisition of Matrix Semiconductor, Inc. in January 2006, msystems Ltd. in November 2006 and MusicGremlin, Inc. in June 2008, we believe the inclusion of non-GAAP financial measures provide consistency in our financial reporting. These non-GAAP results are some of the primary indicators management uses for assessing our performance, allocating resources and planning and forecasting future periods. Further, management uses non-GAAP information as certain non-cash charges such as amortization of purchased intangibles and share-based compensation do not reflect the cash operating results of the business and certain one-time expenses such as write-off of acquired in-process technology do not reflect the ongoing results. These measures should be considered in addition to results prepared in accordance with GAAP, but should not be considered a substitute for or superior to GAAP results. These non-GAAP measures may be different than the non-GAAP measures used by other companies.
 
(a)   Share-based compensation expense.
 
(b)   Amortization of acquisition-related intangible assets, primarily core and developed technology, related to the acquisition of Matrix (January 2006), msystems (November 2006), and MusicGremlin (June 2008).
 
(c)   Inventory step-up expense related to msystems acquisition.
 
(d)   Income taxes associated with certain non-GAAP adjustments.

 

 

SanDisk Corporation
Preliminary Condensed Consolidated Balance Sheets
(in thousands)
                 
    June 29, 2008     December 30, 2007  
    (unaudited)          
ASSETS
                
Current Assets:
                
Cash and cash equivalents
   $ 689,578     $ 833,749  
Short-term investments
     619,632       1,001,641  
Accounts receivable from product revenues, net
     204,030       462,983  
Inventory
     795,606       555,077  
Deferred taxes
     192,128       212,255  
Other current assets
     337,660       233,952  
 
            
Total current assets
     2,838,634       3,299,657  
 
                
Long-term investments
     1,230,562       1,060,393  
Property and equipment, net
     414,387       422,895  
Notes receivable and investments in flash ventures with Toshiba
     1,284,617       1,108,905  
Deferred taxes
     150,661       117,130  
Goodwill
     844,048       840,870  
Intangibles, net
     286,740       322,023  
Other non-current assets
     60,918       62,946  
 
            
Total Assets
   $ 7,110,567     $ 7,234,819  
 
            
 
                
LIABILITIES AND STOCKHOLDERS’ EQUITY
                
 
                
Current Liabilities:
                
Accounts payable
   $ 237,822     $ 285,711  
Accounts payable to related parties
     132,188       158,443  
Other current accrued liabilities
     205,877       286,850  
Deferred income on shipments to distributors and retailers and deferred revenue
     155,466       182,879  
 
            
Total current liabilities
     731,353       913,883  
 
                
Convertible long-term debt
     1,225,000       1,225,000  
Non-current liabilities
     191,299       135,252  
 
            
Total Liabilities
     2,147,652       2,274,135  
 
                
Minority interest
     151       1,067  
 
                
Stockholders’ Equity:
                
Common stock
     3,855,781       3,797,073  
Retained earnings
     1,080,072       1,130,069  
Accumulated other comprehensive income
     26,911       32,475  
 
            
Total Stockholders’ Equity
     4,962,764       4,959,617  
 
            
 
                
Total Liabilities and Stockholders’ Equity
   $ 7,110,567     $ 7,234,819  
 
            

 

 

 
SanDisk Corporation
Preliminary Condensed Consolidated Statement of Cash Flows
(in thousands, unaudited)
                                 
    Three months ended     Six months ended  
    June 29, 2008     July 1, 2007     June 29, 2008     July 1, 2007  
Cash flows from operating activities:
                                
Net income (loss)
   $ (67,877 )   $ 28,484     $ (49,997 )   $ 27,909  
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
                                
Deferred and other taxes
     2,157       24,329       (2,212 )     35,760  
(Gain) loss on equity investments
     549       1,637       4,483       (567 )
Depreciation and amortization
     67,490       64,137       130,373       129,233  
Provision for doubtful accounts
     1,177       625       6,951       1,538  
Share-based compensation expense
     25,108       36,971       48,334       68,190  
Excess tax benefit from share-based compensation
     (883 )     (5,247 )     (1,677 )     (11,508 )
Other non-cash charges
     1,892       3,827       7,284       8,576  
Changes in operating assets and liabilities:
                                
Accounts receivable from product revenues
     (24,935 )     (168,103 )     252,002       298,927  
Inventory
     (99,997 )     (6,454 )     (240,359 )     (104,563 )
Other assets
     (159,556 )     (93,601 )     (49,575 )     (30,176 )
Accounts payable trade
     5,125       1,535       (47,889 )     (71,698 )
Accounts payable to related parties
     (35,976 )     (11,668 )     (32,255 )     10,879  
Other liabilities
     (41,681 )     33,077       (134,237 )     (197,702 )
 
                        
Total adjustments
     (259,530 )     (118,935 )     (58,777 )     136,889  
 
                        
 
                                
Net cash (used in) provided by operating activities
     (327,407 )     (90,451 )     (108,774 )     164,798  
 
                        
 
                                
Cash flows from investing activities:
                                
Purchases of short and long-term investments
     (537,265 )     (1,054,695 )     (892,220 )     (1,591,857 )
Proceeds from sale of short and long-term investments
     294,532       194,723       728,896       233,382  
Maturities of short and long-term investments
     162,514       460,813       352,563       971,300  
Investment in Flash Alliance Ltd.
     (96,705 )     —       (96,705 )     —  
Investment in FlashVision Ltd.
     23,748       —       23,748       —  
Acquisition of capital equipment, net
     (50,138 )     (54,002 )     (106,912 )     (97,801 )
Notes receivable from FlashVision Ltd.
     —       12,735       —       37,512  
Notes receivable from Flash Partners Ltd.
     —       (123,305 )     (37,418 )     (123,305 )
Purchased technology and other assets
     (3,000 )     —       (1,875 )     (13,240 )
Acquisition of MusicGremlin, Inc., net
     (4,528 )     —       (4,528 )     —  
 
                        
Net cash used in investing activities
     (210,842 )     (563,731 )     (34,451 )     (584,009 )
 
                        
 
                                
Cash flows from financing activities:
                                
Proceeds (repayment) from debt financing
     —       3,791       (9,785 )     3,791  
Proceeds from employee stock programs
     2,913       15,732       9,350       54,102  
Distribution to minority interest
     —       (2,395 )     —       (9,880 )
Tax benefit from share-based compensation
     883       5,247       1,677       11,508  
Shares repurchase programs
     —       (55,321 )     —       (97,417 )
 
                        
Net cash provided by (used in) financing activities
     3,796       (32,946 )     1,242       (37,896 )
 
                        
 
                                
Effect of changes in foreign currency exchange rates on cash
     (1,254 )     232       (2,188 )     620  
 
                        
 
                                
Net decrease in cash and cash equivalents
     (535,707 )     (686,896 )     (144,171 )     (456,487 )
 
                                
Cash and cash equivalents at beginning of period
     1,225,285       1,811,109       833,749       1,580,700  
 
 
                        
Cash and cash equivalents at end of period
   $ 689,578     $ 1,124,213     $ 689,578     $ 1,124,213