SanDisk Corp. Q3 2010 Earnings Conference Call Transcript

SanDisk Corp. Q3 2010 Earnings Conference Call Transcript
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SanDisk Corp. (

SNDK

)

Q3 2010 Earnings Call

October 21, 2010 5:00 pm ET

Executives

Jay Iyer - Director, IR

Eli Harari - Chairman and CEO

Sanjay Mehrotra - President and COO

Judy Bruner - EVP of Administration and Chief Financial Officer

Analysts

Gary Hsueh - Oppenheimer

Vijay Rakesh - Sterne Agee

Uche Orji - UBS

Daniel Amir - Lazard Capital Markets

Atif Malik - Morgan Stanley

Daniel Berenbaum - Auriga USA

Kate Kotlarsky - Goldman Sachs

Craig Ellis - Caris & Company

Bob Gujavarty - Deutsche Bank

Presentation

Operator

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» SanDisk Q3 2009 Earnings Call Transcript

Welcome to the SanDisk Corporation’s Fiscal Third Quarter 2010 Financial Results Conference Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Jay Iyer, Director of Investor Relations. Please go ahead, sir.

Jay Iyer

Thank you, Elizabeth, and good afternoon. Joining us on the call today are Dr. Eli Harari, Chairman and CEO of SanDisk; Sanjay Mehrotra, President and COO; and Judy Bruner, Executive Vice President of Administration and CFO.

Before we begin, please note that any non-GAAP financial measures discussed during this call as defined by the SEC in Regulation G will be reconciled to the most directly comparable GAAP financial measure. That reconciliation is now available along with supplemental schedules on our website at sandisk.com/ir.

In addition, during our call today, we will make forward-looking statements. Any statement that refers to expectations, projections or other characterizations of future events, including financial projections and future market conditions is a forward-looking statement. Actual results may materially differ from those expressed in these forward-looking statements.

For more information, please refer to the Risk Factors discussed in the documents we file from time to time with the SEC, including our Annual Report on Form 10-K for fiscal 2009 and our subsequent quarterly reports on Form 10-Q. SanDisk assumes no obligation to update these forward-looking statements, which speak as of the date hereof.

With that, I will turn the call over to Eli.

Eli Harari

This is the last quarterly call that I will address you as SanDisk Chairman and CEO. Therefore, rather than discussing our business in the third and fourth quarter, allow me to take this opportunity to review our most recent past and where I see our opportunities and challenges in the coming years. Sanjay and Judy will discuss our Q3 results and our expectations for Q4.

In the past three years, we experienced the industry’s most severe downturn followed by a strong recovery. We experienced six consecutive weak quarters generating a substantial operating loss, followed by six consecutive quarters of remarkable recovery. The current recovery continues even in the face of adverse macroeconomic in the US, much of Europe and Japan.

For SanDisk, our cumulative non-GAAP operating profit for the six quarters ending this year will be more than 2.5 times greater than the cumulative non-GAAP operating loss in the preceding six quarters.

We believe our industry is driven by several powerful secular trends that point to sustainable profitable growth for us in the coming years. First, in the more developed economies growth for us continues to be driven by the phenomenal rise of the mobile internet and social networks that fuel the surging demand for mobile devices such as Smartphones and tablets that in turn drive strong demand for flash memory.

The second major secular force is the surging consumer middle class in emerging countries such as China, India, Latin America, Middle East and Africa. We are directing substantial resources to expand our businesses in these emerging countries and in the coming years we are encouraged by our gains to-date.

The past downturn has taught the industry that even relatively small imbalances, either up or down, between demand and supply can disproportionately amplify market volatility. I have often said that the NAND industry is self-correcting and in the current recovery the industry did an excellent job of adjusting to compensate for the excessive CapEx investments that were made in the 2005 through 2008 timeframe.

Industry cycles are a fact of life in our business and even severe downturns are in fact quite manageable provided you have solid balance sheet competitive technology and manufacturing base and diversified sales channels so that you’re not overly reliant on any single channel or any single local economy.

New fab capacity decisions are made 18 months ahead of production and even under best laid plans it is now easy to achieve and maintain a healthy balance. Some products such as the iPhone, the iPad and the Kindle come out of nowhere and very quickly enter hockey stick growth trajectory that creates a whole new market category while other products such as solid state drives, SSD, can take much longer to develop. Our focus at SanDisk has been and will continue to be long-term value creation but we do our best to balance growth with profitability and cash flow.

Turning now to flash technology. NAND flash has confounded many skeptics as it marches with confidences to mass production at a 24 through 27-nanometer technology node, a fact that seemed iffy to manage just two years ago. An important element in the success of this rapid scaling has been the all but mandatory adoption of managed NAND requiring sophisticated controllers to compensate for deteriorating [raw] NAND reliability and performance.

This is amply demonstrated for 3-bits per cell X3 NAND where the market is witnessing a wide variability in performance and reliability between the X3 product from different NAND suppliers. I believe that SanDisk is uniquely well-positioned in this space because from day 1 we stayed true to delivering system flash and managed NAND solutions and this is our third generation X3 in production where we have optimized our chip designs and perfected our controllers to deliver a solid solution.

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