EX-99.1 3 dex991.htm PRESS RELEASE DATED OCTOBER 16, 2002 Press Release dated October 16, 2002
 
Exhibit 99.1
 
CONTACT:
   
SanDisk Corporation
    
Michael Gray, Chief Financial Officer,
    
Senior Vice President Finance and Administration
    
(408) 542-0585
 
 
 
SANDISK ANNOUNCES THIRD QUARTER 2002 EARNINGS
 
Continuing Growth In Global Retail Sales
 
SUNNYVALE, CA, October 16, 2002 . . . SanDisk Corporation (NASDAQ:SNDK), the world’s largest supplier of flash memory data storage products, today announced results for its third quarter ended September 30, 2002. Total third quarter revenues were $141.1 million, compared to $127.7 million in the second quarter of 2002. Product revenues were $132.0 million, up 14% from the prior quarter. Third quarter revenues from licenses and royalties were $9.1 million, down from $12.0 million in the prior quarter. Third quarter net income was $11.3 million, or $0.16 per diluted share compared to the second quarter of $9.0 million, or $0.13 per diluted share. The third quarter effective tax rate was 39%, compared to 17% in the second quarter of 2002 and includes foreign withholding taxes on license payments received.
 
Product gross margin for the third quarter was 34% compared to 27% in the second quarter of 2002. Average selling price per megabyte was relatively unchanged from the second quarter. Third quarter total units sold increased 2% and megabytes sold increased 12% compared to the previous quarter.
 
Total third quarter revenues increased 114% from $65.9 million in the third quarter of 2001. Product revenues increased 130% from $57.3 million in the same period of the prior year. Revenues from licenses and royalties increased $0.5 million from $8.6 million in the third quarter of 2001. The third quarter 2002 net income of $11.3 million compares to a net loss of $170.5 million, or negative $2.50 per diluted share in the third quarter of 2001.
 
“We are pleased with the solid performance and our financial results in the third quarter,” said Dr. Eli Harari, President and CEO of SanDisk. “Retail revenues grew sequentially by 19% reflecting increased sales in all geographic regions. Major contributions came from strong sales of Secure Digital (SD) cards and Cruzer, both relatively new products commanding higher gross margins. Sales to OEM customers

increased slightly over the prior quarter. New bookings during the traditionally slow summer quarter were 11% lower than bookings in the second quarter.
 
“Product gross margin improved to 34%, attributable to stable pricing conditions, lower product costs due primarily to a higher mix of the more cost effective MLC (Multi Level Cell) flash and the sale of $3.0 million of NOR flash inventory that was previously written off, which represented 2% of product gross margin contribution. Expense control remained good in all areas.
 
“During the quarter, we concluded important licensing and supply agreements with Samsung which resolved the costly litigation between us and established the framework for a productive relationship with Samsung in future years. In parallel, our FlashVision joint venture with Toshiba is on schedule to ramp up NAND flash production to meet the anticipated growth in demand for our products in future quarters. Early in October, we also announced with Toshiba our .09 micron (90 nanometer) next generation NAND flash joint development program. The 90 nanometer NAND flash is planned to deliver a lower cost, higher capacity successor in 2004 to the .13 micron NAND technology which is starting production at FlashVision in the current fourth quarter.
 
“Turning to the near term outlook, in recent years the fourth quarter has been our strongest quarter, driven primarily by retail sales in the traditionally strong year-end holiday sales season. We expect the same trend in the current fourth quarter. Similar to our experience last year in the same period, we anticipate that the majority of fourth quarter retail bookings and sales will occur in the second half of the quarter. Projected revenues for the fourth quarter will be driven primarily by consumer confidence, which frankly is difficult to gauge given the current political and economic market uncertainties. Income from licenses and royalties is expected to be approximately $10 million in the fourth quarter. Product gross margins are expected to be approximately 30% due to the anticipated increased availability of flash memory leading to declining average selling prices in the fourth quarter, partially offset by continuing cost reductions. Longer term, we believe that the flash markets that we address will continue to grow steadily in 2003, and we are determined to maintain the market leadership position that we have established over the past several years.”
 
This news release contains certain forward-looking statements including our expectations for future product revenues and bookings, earnings and profitability, product demand, average selling prices, and gross margins 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: future average selling price erosion due to excess industry capacity and extreme price competition; increased expenses and fluctuations in operating results and yields related to the startup of flash memory wafer production for FlashVision at the Yokkaichi facility in Japan; potential delays in starting up production of NAND flash memory wafers at the FlashVision joint

venture at Yokkaichi which may reduce our available supply of flash memory and cause us to not be able to meet customer demand for our flash products; our increased exposure to interruption of supply due to our increased dependence on a principal source at Yokkaichi for our supply of NAND flash memory; the current global economic conditions in general and in our markets in particular; the timely development, internal qualification and customer acceptance of new products based on the 1 Gigabit NAND MLC .16 and .13 micron flash chips that SanDisk is obligated to purchase from FlashVision; fluctuations in royalty revenues due to industry wide changes in demand for flash memory products which impact royalty bearing sales of our licensees; the timely introduction and acceptance of new consumer products that incorporate our flash storage devices; slower than expected growth in the emerging markets for our products which may result in reduced sales and increased inventory; successful management of assembly operations in China and Taiwan; the unknown economic impact of terrorist attacks and the military response thereto, or a war with Iraq; seasonality of product sales; market acceptance of our Secure Digital, Cruzer, Memory Stick and Ultra CompactFlash card products; our ability to prevail in patent litigation proceedings; and the other risks detailed from time to time in our Securities and Exchange Commission filings and reports, including, but not limited to, our Forms 10Q for the quarters ended June 30, 2002 and March 31, 2002 and the Annual Report on Form 10-K/A for the year ended December 31, 2001. Future results may differ materially from those previously reported. We assume no obligation to update the information contained in this release.
 
SanDisk Corporation, the world’s largest supplier of flash data storage 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.
 
SanDisk’s third quarter 2002 conference call is scheduled for 2:00 p.m. PDT, Wednesday, October 16th. The phone number is (800) 500-0311. The conference call is being webcast by CCBN and can be accessed at SanDisk’s website at www.sandisk.com/IR and at www.streetevents.com for institutional investors. The webcast will be available through Wednesday, October 30, 2002. The call will also be available by replay after 6:00 p.m. PDT through Sunday, October 20, 2002, by dialing (888) 203-1112 and entering the pass code 480508.
 
 
 
SanDisk’s web site/home page address: http://www.sandisk.com
 
CompactFlash and CF are trademarks of SanDisk Corporation.

 
SanDisk Corporation
Condensed Consolidated Statement of Operations
(In thousands, except per share data, unaudited)
 
    
Three Months Ended
September 30,
     
Nine Months Ended
September 30,
  
    
2002
     
2001
     
2002
     
2001
  
Revenues:
                                    
Product
   
$
132,050
 
   
$
57,305
 
   
$
334,186
 
   
$
233,503
 
License and royalty
   
 
9,078
 
   
 
8,582
 
   
 
27,259
 
   
 
40,859
 
    
  
  
  
Total revenue
   
 
141,128
 
   
 
65,887
 
   
 
361,445
 
   
 
274,362
 
Cost of product sales
   
 
86,787
 
   
 
89,426
 
   
 
252,570
 
   
 
314,958
 
    
  
  
  
Gross profit (loss)
   
 
54,341
 
   
 
(23,539
)
   
 
108,875
 
   
 
(40,596
)
Operating expenses:
                                    
Research and development
   
 
14,026
 
   
 
14,660
 
   
 
45,849
 
   
 
45,231
 
Sales and marketing
   
 
10,742
 
   
 
10,664
 
   
 
28,607
 
   
 
31,415
 
General and administrative
   
 
7,661
 
   
 
4,000
 
   
 
18,918
 
   
 
12,574
 
Restructuring
   
 
—  
 
   
 
8,510
 
   
 
—  
 
   
 
8,510
 
    
  
  
  
Total operating expenses
   
 
32,429
 
   
 
37,834
 
   
 
93,374
 
   
 
97,730
 
Operating profit (loss)
   
 
21,912
 
   
 
(61,373
)
   
 
15,501
 
   
 
(138,326
)
Equity in income (loss) of joint ventures
   
 
(963
)
   
 
794
 
   
 
284
 
   
 
1,301
 
Interest income
   
 
2,054
 
   
 
2,616
 
   
 
6,551
 
   
 
9,770
 
Interest expense
   
 
(1,744
)
   
 
—  
 
   
 
(5,107
)
   
 
—  
 
Loss in investment in foundries
   
 
(1,201
)
   
 
(116,370
)
   
 
(1,201
)
   
 
(296,351
)
Loss in equity investment
   
 
(900
)
   
 
—  
 
   
 
(900
)
   
 
—  
 
Other expense, net
   
 
(639
)
   
 
(514
)
   
 
(2,622
)
   
 
(2,516
)
    
  
  
  
Income (loss) before taxes
   
 
18,519
 
   
 
(174,847
)
   
 
12,506
 
   
 
(426,122
)
Provision for (benefit from) income taxes
   
 
7,195
 
   
 
(4,371
)
   
 
(4,124
)
   
 
(102,550
)
    
  
  
  
Net income (loss)
   
$
11,324
 
   
$
(170,476
)
   
$
16,630
 
   
$
(323,572
)
    
  
  
  
Net income (loss) per share
                                    
Basic
   
$
0.16
 
   
$
(2.50
)
   
$
0.24
 
   
$
(4.75
)
Diluted
   
$
0.16
 
   
$
(2.50
)
   
$
0.23
 
   
$
(4.75
)
Shares used in computing net income (loss) per share
                                    
Basic
   
 
68,854
 
   
 
68,289
 
   
 
68,721
 
   
 
68,064
 
Diluted
   
 
79,003
 
   
 
68,289
 
   
 
70,948
 
   
 
68,064
 

 
SanDisk Corporation
Condensed Consolidated Balance Sheets
(In thousands)
 
    
September 30, 2002
     
December 31, 2001 *
    
(unaudited)
ASSETS
                
Current Assets:
                
Cash and cash equivalents
   
$
311,287
 
   
$
189,499
Short-term investments
   
 
121,252
 
   
 
105,501
Investment in foundries
   
 
116,372
 
   
 
105,364
Accounts receivable, net
   
 
67,087
 
   
 
45,223
Inventories
   
 
79,097
 
   
 
55,968
Tax refund receivable
   
 
28,957
 
   
 
28,473
Prepaid expenses and other current assets
   
 
13,384
 
   
 
12,129
    
  
Total current assets
   
 
737,436
 
   
 
542,157
Restricted cash and cash equivalents
   
 
—  
 
   
 
64,734
Property and equipment, net
   
 
32,356
 
   
 
33,730
Investment in foundries
   
 
24,053
 
   
 
41,380
Restricted investment in UMC
   
 
—  
 
   
 
64,734
Investment in FlashVision
   
 
143,453
 
   
 
153,168
Deferred tax asset
   
 
12,064
 
   
 
18,842
Deposits and other non-current assets
   
 
13,830
 
   
 
13,603
    
  
Total Assets
   
$
963,192
 
   
$
932,348
    
  
LIABILITIES AND STOCKHOLDERS’ EQUITY
                
Current Liabilities:
                
Accounts payable
   
$
33,666
 
   
$
19,938
Accounts payable to related parties
   
 
31,260
 
   
 
24,008
Accrued payroll and related expenses
   
 
4,370
 
   
 
5,279
Income taxes payable
   
 
9,991
 
   
 
7,361
Deferred tax liability
   
 
12,064
 
   
 
18,842
Research & development liability, related party
   
 
13,121
 
   
 
15,256
Other accrued liabilities
   
 
27,475
 
   
 
20,571
Deferred income on shipments to distributors and retailers and deferred revenue
   
 
44,673
 
   
 
15,806
    
  
Total current liabilities
   
 
176,620
 
   
 
127,061
Convertible subordinated notes payable
   
 
150,000
 
   
 
125,000
Deferred taxes and other liabilities
   
 
7,789
 
   
 
4,908
Deferred revenue
   
 
20,982
 
   
 
—  
    
  
Total Liabilities
   
 
355,391
 
   
 
256,969
    
  
Stockholders’ Equity:
                
Common stock
   
 
584,680
 
   
 
580,431
Retained earnings
   
 
65,155
 
   
 
48,525
Accumulated other comprehensive income
   
 
(42,034
)
   
 
46,423
    
  
Total stockholders’ equity
   
 
607,801
 
   
 
675,379
    
  
Total Liabilities and Stockholders’ Equity
   
$
963,192
 
   
$
932,348
    
  
*
 
Information derived from the audited Consolidated Financial Statements.