SanDisk Announces Second Quarter 2012 Financial Results

MILPITAS, Calif.--()--SanDisk Corporation (NASDAQ:SNDK), a global leader in flash memory storage solutions, announced today results for the second quarter ended July 1, 2012. Total second quarter revenue of $1.03 billion declined 25% on a year-over-year basis and declined 14% on a sequential basis.

On a GAAP(1) basis, second quarter net income was $13 million, or $0.05 per diluted share, compared to net income of $248 million, or $1.02 per diluted share, in the second quarter of fiscal 2011 and $114 million, or $0.46 per diluted share, in the first quarter of fiscal 2012.

On a non-GAAP(2) basis, second quarter net income was $51 million, or $0.21 per diluted share, compared to net income of $278 million, or $1.14 per diluted share, in the second quarter of fiscal 2011 and net income of $156 million, or $0.63 per diluted share, in the first quarter of fiscal 2012. For reconciliation of non-GAAP to GAAP results, see accompanying financial tables and footnotes.

"We delivered second quarter results in line with our forecast, reflecting short-term weakness in our mobile OEM sales, strength in retail, especially in international markets, and growth in our enterprise and client SSD products,” said Sanjay Mehrotra, president and chief executive officer of SanDisk. “I am pleased to report that our SSD revenues achieved 10% of second quarter sales with growing adoption of our solutions by major OEMs. We also made good progress on our embedded product roadmap for mobile customers. We believe that strengthening industry fundamentals and our expanding portfolio of solutions will contribute to improving financial results in the second half of 2012."

SECOND QUARTER 2012 KEY FINANCIAL METRICS

Metric
in millions of US$,
except %

  GAAP   Non-GAAP
  Q212   Q211   Q112 Q212   Q211   Q112
Revenue   $1,032   $1,375   $1,206 $1,032   $1,375   $1,206

Gross Profit
% of revenue

  $281

27.2%

  $613

44.6%

  $417

34.5%

$292

28.3%

  $623

45.3%

  $432

35.8%

Operating Income
% of revenue

  $36

3.5%

  $379

27.6%

  $192

15.9%

$68

6.6%

  $402

29.3%

  $227

18.8%

CONFERENCE CALL

SanDisk’s second quarter of fiscal 2012 conference call is scheduled for 2:00 P.M., Pacific Time, Thursday, July 19, 2012. The conference call will be webcast and can be accessed live, and throughout the quarter, at SanDisk’s website at http://www.sandisk.com/IR. To participate in the call via telephone, the dial-in number is 647-438-1131 and the dial-in password is 1091224. 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.

FORWARD-LOOKING STATEMENTS

This news release contains certain forward-looking statements, including statements about our business prospects and our expectations regarding our business, our belief that our OEM sales will improve and our industry will strengthen in the second half of 2012, our belief that industry supply/demand fundamentals are improving, our expanded product portfolio, expected financial results, and pricing and demand trends that are based on our current expectations and are subject to numerous risks and uncertainties that may cause these forward-looking statements to be inaccurate and may significantly harm our business, financial condition and results of operations. Risks that may cause these forward-looking statements to be inaccurate include among others:

  • competitive pricing pressures, resulting in lower average selling prices and lower or negative product gross margins;
  • potential delays in product development or lack of customer acceptance of our solutions, particularly OEM products such as our embedded flash storage solutions, and client and enterprise SSD solutions;
  • unpredictable or changing demand for our products, including form factors, capacities and underlying memory technologies;
  • excess captive memory output or capacity, which could result in write-downs for excess inventory, lower of cost or market charges, lower average selling prices, fixed costs associated with under-utilized capacity or other consequences;
  • inability to maintain or gain market share in client and enterprise SSD markets; and
  • the 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 Quarterly Report on Form 10-Q for the fiscal quarter ended April 1, 2012.

(1) GAAP represents U.S. Generally Accepted Accounting Principles.

(2) Non-GAAP represents GAAP excluding the impact of share-based compensation expense, amortization of acquisition-related intangible assets, non-cash economic interest expense associated with the Company’s convertible debt and related tax adjustments.

ABOUT SANDISK

SanDisk Corporation is a global leader in flash memory storage solutions, from research and development, product design and manufacturing to branding and distribution for OEM and retail channels. Since 1988, SanDisk’s innovations in flash memory and storage system technologies have provided customers with new and transformational digital experiences. SanDisk’s diverse product portfolio includes flash memory cards and embedded solutions used in smart phones, tablets, digital cameras, camcorders, digital media players and other consumer electronic devices, as well as USB flash drives and solid-state drives (SSD) for the computing and enterprise markets. SanDisk’s products are used by consumers and enterprise customers around the world.

SanDisk is a Silicon Valley-based S&P 500 and Fortune 500 company, with more than half its sales outside the United States. For more information, visit www.sandisk.com.

SanDisk and the SanDisk logo are trademarks of SanDisk Corporation, registered in the United States and other countries. Other brand names mentioned herein are for identification purposes only and may be the trademarks of their respective holder(s).

 
SanDisk Corporation
Preliminary Condensed Consolidated Statements of Operations
(in thousands, except per share amounts, unaudited)
       
 
Three months ended Six months ended
July 1, 2012 July 3, 2011 July 1, 2012 July 3, 2011
Revenues:
Product $ 945,204 $ 1,281,960 $ 2,051,626 $ 2,492,207
License and royalty   87,051     93,033     186,190     176,986  
Total revenues 1,032,255 1,374,993 2,237,816 2,669,193
 
Cost of product revenues 742,297 753,307 1,517,617 1,490,799
Amortization of acquisition-related intangible assets   9,181     8,254     22,912     13,370  
Total cost of product revenues   751,478     761,561     1,540,529     1,504,169  
Gross profit 280,777 613,432 697,287 1,165,024
 
Operating expenses:
Research and development 152,397 145,332 293,354 264,874
Sales and marketing 52,261 48,200 101,296 95,657
General and administrative 37,692 40,154 70,283 75,453
Amortization of acquisition-related intangible assets   2,244     730     4,307     730  
Total operating expenses   244,594     234,416    

469,240

    436,714  
 
Operating income 36,183 379,016 228,047 728,310
 
Other income (expense), net   (17,197 )   (14,273 )   (42,513 )   (32,639 )
 
Income before income taxes 18,986 364,743 185,534 695,671
 
Provision for income taxes   6,017     116,353     58,180     223,157  
Net income $ 12,969   $ 248,390   $ 127,354   $ 472,514  
 
Net income per share:
Basic $ 0.05 $ 1.04 $ 0.53 $ 1.98
Diluted $ 0.05 $ 1.02 $ 0.52 $ 1.94
 
Shares used in computing net income per share:
Basic 242,276 238,851 242,579 238,162
Diluted 244,570 243,862 246,026 243,718
 
 
SanDisk Corporation
Reconciliation of Preliminary GAAP to Non-GAAP Operating Results (1)
(in thousands, except per share data, unaudited)
       
Three months ended Six months ended
July 1, 2012 July 3, 2011 July 1, 2012 July 3, 2011
 
SUMMARY RECONCILIATION OF NET INCOME
GAAP NET INCOME $ 12,969 $ 248,390 $ 127,354 $ 472,514
Share-based compensation (a) 20,253 14,358 39,333 28,949
Amortization of acquisition-related intangible assets (b) 11,425 8,984 27,219 14,100
Convertible debt interest (c) 22,355 23,833 44,242 47,198
Income tax adjustments (d)   (15,889 )   (17,520 )   (30,719 )   (34,136 )
NON-GAAP NET INCOME $ 51,113   $ 278,045   $ 207,429   $ 528,625  
 
GAAP COST OF PRODUCT REVENUES $ 751,478 $ 761,561 $ 1,540,529 $ 1,504,169
Share-based compensation (a) (1,923 ) (1,089 ) (3,460 ) (2,032 )
Amortization of acquisition-related intangible assets (b)   (9,181 )   (8,254 )   (22,912 )   (13,370 )
NON-GAAP COST OF PRODUCT REVENUES $ 740,374   $ 752,218   $ 1,514,157   $ 1,488,767  
 
GAAP GROSS PROFIT $ 280,777 $ 613,432 $ 697,287 $ 1,165,024
Share-based compensation (a) 1,923 1,089 3,460 2,032
Amortization of acquisition-related intangible assets (b)   9,181     8,254     22,912     13,370  
NON-GAAP GROSS PROFIT $ 291,881   $ 622,775   $ 723,659   $ 1,180,426  
 
GAAP RESEARCH AND DEVELOPMENT EXPENSES $ 152,397 $ 145,332 $ 293,354 $ 264,874
Share-based compensation (a)   (10,623 )   (7,684 )   (20,650 )   (14,928 )
NON-GAAP RESEARCH AND DEVELOPMENT EXPENSES $ 141,774   $ 137,648   $ 272,704   $ 249,946  
 
GAAP SALES AND MARKETING EXPENSES $ 52,261 $ 48,200 $ 101,296 $ 95,657
Share-based compensation (a)   (3,634 )   (2,868 )   (7,263 )   (5,042 )
NON-GAAP SALES AND MARKETING EXPENSES $ 48,627   $ 45,332   $ 94,033   $ 90,615  
 
GAAP GENERAL AND ADMINISTRATIVE EXPENSES $ 37,692 $ 40,154 $ 70,283 $ 75,453
Share-based compensation (a)   (4,073 )   (2,717 )   (7,960 )   (6,947 )
NON-GAAP GENERAL AND ADMINISTRATIVE EXPENSES $ 33,619   $ 37,437   $ 62,323   $ 68,506  
 
GAAP TOTAL OPERATING EXPENSES $ 244,594 $ 234,416 $ 469,240 $ 436,714
Share-based compensation (a) (18,330 ) (13,269 ) (35,873 ) (26,917 )
Amortization of acquisition-related intangible assets (b)   (2,244 )   (730 )   (4,307 )   (730 )
NON-GAAP TOTAL OPERATING EXPENSES $ 224,020   $ 220,417   $ 429,060   $ 409,067  
 
GAAP OPERATING INCOME $ 36,183 $ 379,016 $ 228,047 $ 728,310
Cost of product revenues adjustments (a) (b) 11,104 9,343 26,372 15,402
Operating expense adjustments (a) (b)   20,574     13,999     40,180     27,647  
NON-GAAP OPERATING INCOME $ 67,861   $ 402,358   $ 294,599   $ 771,359  
 
GAAP OTHER INCOME (EXPENSE), NET $ (17,197 ) $ (14,273 ) $ (42,513 ) $ (32,639 )
Convertible debt interest (c)   22,355     23,833     44,242     47,198  
NON-GAAP OTHER INCOME (EXPENSE), NET $ 5,158   $ 9,560   $ 1,729   $ 14,559  
 
GAAP NET INCOME $ 12,969 $ 248,390 $ 127,354 $ 472,514
Cost of product revenues adjustments (a) (b) 11,104 9,343 26,372 15,402
Operating expense adjustments (a) (b) 20,574 13,999 40,180 27,647
Convertible debt interest (c) 22,355 23,833 44,242 47,198
Income tax adjustments (d)   (15,889 )   (17,520 )   (30,719 )   (34,136 )
NON-GAAP NET INCOME $ 51,113   $ 278,045   $ 207,429   $ 528,625  
 
Diluted net income per share:
GAAP $ 0.05 $ 1.02 $ 0.52 $ 1.94
Non-GAAP $ 0.21 $ 1.14 $ 0.84 $ 2.17
 
Shares used in computing diluted net income per share:
GAAP 244,570 243,862 246,026 243,718
Non-GAAP 244,701 243,889 246,026 243,727
 
SanDisk Corporation
Reconciliation of Preliminary GAAP to Non-GAAP Operating Results (1)
   
(1) To supplement our condensed consolidated financial statements presented in accordance with generally accepted accounting principles (GAAP), we use non-GAAP measures of operating results, net income and net income 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, amortization of acquisition-related intangible assets related to acquisitions of Matrix Semiconductor, Inc. in January 2006, Pliant Technology, Inc. in May 2011, FlashSoft Corporation in February 2012 and Schooner Information Technology, Inc. in June 2012, non-cash economic interest expense associated with the convertible debt and related tax adjustments, we believe the inclusion of non-GAAP financial measures provides 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 that excludes certain non-cash charges, such as amortization of purchased intangible assets, share-based compensation, non-cash economic interest expense associated with the convertible debt and related tax adjustments, as these non-GAAP charges do not reflect the cash operating results of the business or 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 technology, developed technology, customer relationships and trademarks related to the acquisitions of Matrix Semiconductor, Inc. (January 2006), Pliant Technology, Inc. (May 2011), FlashSoft Corporation (February 2012) and Schooner Information Technology, Inc. (June 2012).
 
(c) Incremental interest expense relating to the non-cash economic interest expense associated with the Company's 1% Sr. Convertible Notes due 2013 and 1.5% Sr. Convertible Notes due 2017.
 
(d) Income taxes associated with certain non-GAAP to GAAP adjustments.
 
 
SanDisk Corporation
Preliminary Condensed Consolidated Balance Sheets
(in thousands, unaudited)
     
July 1, 2012 January 1, 2012
ASSETS
Current assets:
Cash and cash equivalents $ 1,070,454 $ 1,167,496
Short-term marketable securities 1,468,206 1,681,492
Accounts receivable from product revenues, net 281,822 521,763
Inventory 862,518 678,382
Deferred taxes 97,733 100,409
Other current assets   356,146     206,419  
Total current assets 4,136,879 4,355,961
 
Long-term marketable securities 2,724,382 2,766,263
Property, land and equipment, net 512,734 344,897
Notes receivable and investments in Flash Ventures 1,871,148 1,943,295
Deferred taxes 186,925 199,027
Goodwill 197,878 154,899
Intangible assets, net 284,181 287,691
Other non-current assets   161,622     122,615  
Total assets $ 10,075,749   $ 10,174,648  
 
LIABILITIES
Current liabilities:
Accounts payable trade $ 255,173 $ 258,583
Accounts payable to related parties 234,843 276,275
Convertible short-term debt 878,929
Other current accrued liabilities 237,237 337,517
Deferred income on shipments to distributors and retailers and deferred revenue   218,213     220,999  
Total current liabilities 1,824,395 1,093,374
 
Convertible long-term debt 771,098 1,604,911
Non-current liabilities   442,375     415,524  
Total liabilities   3,037,868     3,113,809  
 
EQUITY
Stockholders' equity:
Common stock 4,956,959 4,934,808
Retained earnings 1,829,364 1,796,849
Accumulated other comprehensive income   255,521     332,701  
Total stockholders' equity 7,041,844 7,064,358
Non-controlling interests   (3,963 )   (3,519 )
Total equity   7,037,881     7,060,839  
Total liabilities and equity $ 10,075,749   $ 10,174,648  
 
 
SanDisk Corporation
Preliminary Condensed Consolidated Statements of Cash Flows
(in thousands, unaudited)
       
 
Three months ended Six months ended
July 1, 2012 July 3, 2011 July 1, 2012 July 3, 2011
Cash flows from operating activities:
Net income $ 12,969 $ 248,390 $ 127,354 $ 472,514
Adjustments to reconcile net income to net cash provided by operating activities:
Deferred taxes 460 (13,398 ) 5,963 (7,224 )
Depreciation 36,525 27,862 69,703 57,637
Amortization 41,303 40,511 86,449 73,350
Provision for doubtful accounts (439 ) (209 ) (1,724 ) (2,954 )
Share-based compensation expense 20,253 14,358 39,333 28,949
Excess tax benefit from share-based compensation (2,424 ) (5,399 ) (11,021 ) (11,811 )
Impairment, restructuring and other (1,333 ) (6,268 ) (6,787 ) (19,445 )
Other non-operating 22,525 21,235 52,187 41,683
Changes in operating assets and liabilities:
Accounts receivable from product revenues, net 81,197 (132,051 ) 241,671 (587 )
Inventory (98,503 ) (50,380 ) (183,715 ) (34,001 )
Other assets (52,594 ) (47,620 ) 13,112 (71,369 )
Accounts payable trade 30,883 32,852 (3,410 ) (3,457 )
Accounts payable to related parties 33,771 64,363 (41,432 ) 33,867
Other liabilities   (105,478 )   75,000     (301,394 )   110,733  
Total adjustments   6,146     20,856     (41,065 )   195,371  
Net cash provided by operating activities   19,115     269,246     86,289     667,885  
 
Cash flows from investing activities:
Purchases of short and long-term marketable securities (605,709 ) (972,067 ) (1,362,066 ) (1,609,568 )
Proceeds from sale of short and long-term marketable securities 547,444 974,177 1,173,180 1,471,780
Proceeds from maturities of short and long-term marketable securities 214,588 206,570 407,430 323,810
Acquisition of property, land and equipment (96,076 ) (27,608 ) (240,294 ) (61,353 )
Investment in Flash Ventures (37,913 ) (18,272 ) (50,439 ) (18,333 )
Notes receivable issuances to Flash Ventures (91,186 ) (152,811 ) (142,316 ) (366,762 )
Notes receivable proceeds from Flash Ventures 147,953 211,786 85,096
Purchased technology and other assets (194 ) (222 ) (100,000 )
Acquisitions, net of cash acquired   (14,666 )   (302,649 )   (69,204 )   (317,649 )
Net cash provided by (used in) investing activities   64,241     (292,660 )   (72,145 )   (592,979 )
 
Cash flows from financing activities:
Proceeds from employee stock programs 5,354 16,458 50,672 58,606
Excess tax benefit from share-based compensation 2,424 5,399 11,021 11,811
Share repurchase program (93,164 ) (154,075 )
Net cash received (paid) for share repurchase contracts   (20,000 )   (18,858 )
Net cash provided by (used in) financing activities   (105,386 )   21,857     (111,240 )   70,417  
 
Effect of changes in foreign currency exchange rates on cash   (779 )   1,961     54     382  
 
Net increase (decrease) in cash and cash equivalents (22,809 ) 404 (97,042 ) 145,705
 
Cash and cash equivalents at beginning of period 1,093,263 974,450 1,167,496 829,149
       
Cash and cash equivalents at end of period $ 1,070,454   $ 974,854   $ 1,070,454   $ 974,854  

Contacts

SanDisk Corporation
Investor Contact:
Jay Iyer, 408-801-2067
Media Contact:
Lee Flanagin, 408-801-2463

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Contacts

SanDisk Corporation
Investor Contact:
Jay Iyer, 408-801-2067
Media Contact:
Lee Flanagin, 408-801-2463