SanDisk (SNDK)

Q3 2011 Earnings Call

October 20, 2011 5:00 pm ET


Judy Bruner - Chief Financial officer, Executive Vice President of Administration and Member of Secondary Executive Committee

Jay Iyer - Director of Investor Relations

Sanjay Mehrotra - Co-Founder, Chief Executive Officer, President, Director and Member of Special Option Committee


Vijay R. Rakesh - Sterne Agee & Leach Inc., Research Division

Srinivasan Sundararajan - Oppenheimer & Co. Inc., Research Division

Alex Gauna - JMP Securities LLC, Research Division

Daniel L. Amir - Lazard Capital Markets LLC, Research Division

Craig A. Ellis - Caris & Company, Inc., Research Division

Kevin Cassidy - Stifel, Nicolaus & Co., Inc., Research Division

Uche X. Orji - UBS Investment Bank, Research Division

James Schneider - Goldman Sachs Group Inc., Research Division

Mark C. Newman - Sanford C. Bernstein & Co., LLC., Research Division

Ryan Goodman - CLSA Asia-Pacific Markets, Research Division

Bobby Gujavarty - Deutsche Bank AG, Research Division

Unknown Analyst -

Atif Malik - Morgan Stanley, Research Division



Good day, and welcome to SanDisk Corp.'s Fiscal Third Quarter 2011 Financial Results Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Jay Iyer, Director of Investor Relations. Please go ahead, sir.

Jay Iyer

Thank you, Jay, and good afternoon, everyone. Joining us on the call today are Sanjay Mehrotra, President 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 Reg 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 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 section discussed in the documents we file from time to time with the SEC, including our annual report on Form 10-K for fiscal 2010 and our subsequent quarterly reports on Form 10-Q. SanDisk assumes no obligation to update these forward-looking statements, which speak as of their respective dates.

With that, I'll turn the call over to Sanjay.

Sanjay Mehrotra

Thank you, Jay, and good afternoon, everyone. We delivered yet another record quarterly revenue driven by year-over-year growth in both our OEM and retail channels. Excellent improvements in memory cost helped deliver a very healthy gross margin. Despite the uncertainties surrounding the global macroeconomic environment, overall demand for our products continued to grow. This illustrates the secular growth trends in consumer and enterprise markets, which are driving ever-increasing demand for flash storage solutions and also highlights the benefits of our broad product portfolio and our diversified and global customers and channels.

Our mobile revenue grew nicely on a year-over-year basis from the increased sales of our embedded products, including iNAND, for mobile devices. The mobile market continues to experience robust growth in feature phones, smartphones, tablets and eReaders, and OEMs are increasingly competing by differentiating on product feature and performance attributes. Our broad array of high-performance embedded mobile products, including iNAND, iNAND Ultra, iNAND Extreme, iSSD and removable cards position us well for continued success in this evolving market. As for the tablet market, it underwent a significant shake out in the third quarter and yet, we delivered 25% year-over-year revenue growth from our retail and OEM mobile end markets combined, reflecting our strong gains in this ecosystem.

Turning to the solid-state drive business. I'm very pleased to report that our integration of Pliant Technology has gone exceedingly well. We are excited to see robust business momentum from our enterprise storage solutions group. SanDisk enterprise SSDs have been qualified at 3 out of 7 Tier 1 storage OEMs with multiple systems now shipping, contributing to strong revenue increase in the third quarter. We are deeply engaged at other OEMs and we expect to complete qualifications at several more customers in the next few months. Our differentiated products feature a proprietary, massively parallel architecture, utilizing our third-generation ASIC controller and advanced firmware. All of these features are designed to deliver very fast, predictable, data transfer and processing speeds with minimal power consumption. We expect to continue building on our early success in this business especially as we begin using our high-quality captive memory supply in our leadership products, as we believe that vertical integration will be key to long-term success in this market.

Within the PC ecosystem, innovation is unfolding in Ultrabooks driving demand for NAND flash. Specifically, from a system design perspective, NAND Flash can be designed into Ultrabooks either as high-capacity solid-state drives or as lower-capacity caches alongside high-capacity hard drives. Ultrabooks designs mandate a highly responsive user experience with features such as instant-on and longer battery life, packaged in an ultrathin form factor. We believe these innovations -- we believe these innovative developments bode well for significantly increased NAND flash consumption in the PC ecosystem in the years ahead. We have begun making inroads into this market with our SSDs and we have an early footing with the recent launch of one of the first SSD-only ASUS UX21 and UX31 Ultrabooks with another Tier 1 OEM design win achieved already. Design activity projects at several other OEMs are underway.

Our retail channel grew year-over-year, a trend that has continued since the first quarter of 2010. The emerging markets were the primary source of year-over-year growth in the third quarter. On a sequential basis, all regions posted healthy revenue growth with APAC the strongest. Third quarter retail revenue growth benefited from a successful back-to-school season in the U.S. with strong demand for our USB flash drives and mobile cards. In September, we unveiled a broad lineup of new retail products, mostly -- most notably the 64GB SanDisk Extreme Pro SD card and SanDisk Mobile Ultra microSD card, reflecting continued innovations in our removable products category. We also introduced the SanDisk Memory Vault, a new product designed to preserve images in their original quality for up to 100 years, creating a new preservation solution category. From a fourth quarter perspective, we believe we are well-positioned with our key accounts with programs and promotions in place for the holiday season.

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