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SanDisk (SNDK)

Q4 2010 Earnings Call

January 27, 2011 5:00 pm ET


Sanjay Mehrotra - Co-Founder, Chief Executive Officer, President, Chief Operating Officer, Director and Member of Secondary Executive Committee

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Judy Bruner - Chief Financial Officer, Principal Accounting Officer, Executive Vice President of Administration and Member of Secondary Executive Committee

Jay Iyer - Director of Investor Relations


Atif Malik - Morgan Stanley

Uche Orji - UBS Investment Bank

Kate Kotlarsky - Goldman Sachs

Hans Mosesmann - Raymond James & Associates

Tristan Gerra - Robert W. Baird & Co. Incorporated

Bobby Gujavarty - Deutsche Bank AG

Daniel Amir - Lazard Capital Markets LLC

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Daniel Berenbaum - Auriga USA LLC

Hendi Susanto - Gabelli & Company, Inc.

Craig Ellis - Caris & Company


Question-and-Answer Session

Judy Bruner

In terms of the impact on the fourth quarter, Daniel, it was really the $18 million charge that I described. It really did not impact revenue in the fourth quarter. In the first quarter, our available supply is reduced by something less than 10% relative to the Power outage. And we're making up for some of that with non-captive purchases. But it is a factor in our available supply in the first quarter.


Our next is Daniel Berenbaum from Auriga USA.

Daniel Berenbaum - Auriga USA LLC

Just again looking at the guidance, when you talked about Q1 ASP declines being relatively benign and then looking at 2011 being relatively worse than 2010. Can you help us put a little bit more structure around that? Just put some numbers around that?

Judy Bruner

We're not going to put numbers around it, but let me try to give you a little more color. We do believe that the industry in 2011 will be in a healthy supply-demand balance. And we believe that, that translates into a rate of price decline that will be somewhat higher than what the industry experienced in 2010, which was actually a quite benign rate of price decline in 2010. And so we are expecting that it will be higher in 2011. We think it will be a healthy rate of price decline for the industry that will help stimulate further growth in demand and in new applications. And that is all built in to our guidance for revenue growth and for margins for 2011, which we think are very strong.

Daniel Berenbaum - Auriga USA LLC

So then tying into that, I mean, do you imply that -- or it seems that you think that your cost reduction is going to be a little bit less than price declines since it looks like gross margin is going down just a little bit, and I'm sorry I just have worked through all the math. Is that the right way to think about it? And then you had talked last year, you talked about your long-term cost reduction per byte roadmap being 25% and 35% annually over the course of the next last couple of years. Is that still the right way to think about it?

Judy Bruner

I think you're thinking about it correctly, Daniel. In terms of the all in cost reduction, we believe we'll continue to be a cost leader in 2011 and that we will have very strong cost reduction. But when we factor in all the various moving parts such as the yen exchange rate and the Fab 5 start up costs and some increased usage of non-captive, those all factored into the cost reduction would result in an expectation for cost reduction to be a bit less than price decline, which then is factored into the gross margin guidance that we provided.

Daniel Berenbaum - Auriga USA LLC

So if we were just looking at your -- or if we are excluding those external factors and just looking at your cost reduction, do you think that would be ahead of price declines?

Judy Bruner

You know we're not going to give that kind of specificity, but we do believe that our cost reduction capability is very strong in terms of our underlying cost reduction. And the gross margin that we're arriving at is at the higher end or above our long-term financial model.

Daniel Berenbaum - Auriga USA LLC

And then one last question along those lines, I didn't read the prepared commentary. You talked about ASP being down partly due to increased shifts in OEM or to higher density in OEMs. Could you give a little more clarity around that? I though OEM is a better ASPs or what did I didn't understand?

Judy Bruner

Really, what I referred to was a higher growth rate in the average capacity of our OEM products. And as you move up in terms of average capacity, ASP per gigabyte does not move up exactly in correlation. It tends to be at a lower rate at the higher capacities. And so that without an actual price decline, it contributes to a somewhat lower ASP per gigabyte.


Our next question today comes from Craig Ellis, Caris & Company.

Craig Ellis - Caris & Company

Sanjay, can you talk a little bit about the 24-nanometer transition? What's some of the key milestones will be in 2011 as you go to that?

Sanjay Mehrotra

We started production of 24-nanometer at the end of last year. During 2011 we will continue to ramp up 24-nanometer, convert from 32-nanometer production to 24-nanometer in our Fabs. By end of this year, we expect to be fully converted by the end of December timeframe to 24-nanometer, except for any 32-nanometer requirement that we still may have related to certain customers.

Craig Ellis - Caris & Company

And then just going back to something that's very topical. On the subject of tablets, can you talk about how meaningful tablets are so the revenue stream now and if you look at the design and pipeline, when do they begin to become much more meaningful as it's heavily to the year or are there any particular step up as we think about the next three or four quarters?

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