SanDisk Corporation (SNDK)
Q1 2010 Earnings Call Transcript
April 21, 2010 5:00 pm ET
Jay Iyer – IR
Eli Harari – Founder, Chairman and CEO
Judy Bruner – EVP, Administration and CFO
Daniel Amir – Lazard
Kate Kotlarsky – Goldman Sachs
Paul Coster – JPMorgan
Bob Gujavarty – Deutsche Bank
Uche Orji – UBS
Craig Ellis – Caris & Company
Daniel Berenbaum – Auriga USA
Hendi Susanto – Gabelli
Caitlin Wolford [ph] – Ardent Capital Management
Betsy Van Hees – Wedbush
Tristan Gerra – Robert Baird
Atif Malik – Morgan Stanley
Previous Statements by SNDK
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Good day and welcome to the SanDisk Corporation first quarter 2010 earnings conference call. Today's call is being recorded. And at this time, I would like to turn the conference over to Jay Iyer, Director of Investor Relations. Please go ahead.
Thank you, Anthony, and good afternoon, everyone. Joining us on the call today are Dr. Eli Harari, Chairman and CEO of SanDisk; 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 differ materially 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 would turn the call over to Eli.
Thank you, Jay, and good afternoon, everyone. First quarter results were considerably better than we had expected. Our OEM business was start at the quarter, driven by strong demand from our mobile customers as well as new channels and customers added in 2009.
The OEM business accounted for 63% of total product revenue in Q1, and has been a stabilizing factor compensating for the first quarter seasonality in our retail business, which has yet to recover from the economic downturn in the U.S. and Europe. Our focus in retail continuous to be to maximize profitability, while expanding into new geographies where we believe we are making steady inroads.
In the mobile end market we continue to see strong adopting of our iNAND embedded storage solutions as well as mobile card. Mobile has now grown to half of our product revenues, compares to virtually nothing five years ago.
MicroSD has become the de facto cards in mobile phones and the market place has bifurcated into low capacity one and two gigabyte MircoSD cards for low end phones and high capacity for 32 gigabyte MircoSD card for high end Smartphone and we believe we hold strong leadership positions in both segments.
The mobile market for FLASH is still in its early days. Just to remind you mobile Apps hardly existed and Smartphones were hardly household word just two years ago. The iPod along with other similar products is expected to drive demand for FLASH memory 64 gigabyte in higher capacities, where the DISK demand comes in the form of embedded storage or removable cards. We are now well positioned in both categories.
We continue to gain traction with leading OEMs for our modular SSD solutions, Solid State Disk in netbook and public computers. In the first quarter we also entered the retail Solid State drive market with our G3 products. At current NAND pricing levels, SSD solutions are still expensive. However, we believe this market too should drive very substantial consumption of high capacity flash as it becomes much more affordable. We expect this will occur with add vented of 20Xnanometer flash memory technology in mass production next year, and with 1 X NAND technology in 2012.
We're now executing to our aggressive solid disk road map that should take us to being top tier supplier as SSD adoption accelerates in net books, notebooks, and tablet PC platforms in the years ahead. On the operations and technology front we're very pleased with the ramp of our 32-nanometer technology as well as the continuing cost benefits that we see from broad implementation of our 3-bit-per-cell X3 technology into our products where we believe we are significantly ahead of competition. In the first, quarter our cost per gigabyte declined by 14% sequentially, continuing our highly competitive cost structure.
As for the industry environment, demand and supply appears to be in balance for 2010. For our sales we now expect our captive bit output to increase in 2010 over 2009 by approximately 75%, up from approximately 70% estimated previously with outside coming late in the year from better productivity and Fab 4 expansion.
Last month, Toshiba announced the intention to commence construction of the shell for a new clean image that will eventually be Fab 5. We're evaluating the timing of our participation in Fab 5, and we will provide further details as they become available later in the year.
In summery the first quarter was a very-very good start for 2010. With our leading technology, large scale manufacturing, diversified end markets, broad product portfolio, premium brand, and a strong balance sheet, we have powerful momentum to capitalize on future opportunities and we believe that in the coming decade flash will be bigger than you think. I will now turn it over to Jude.