Oppenheimer 15th Annual Technology, Internet & Communications Conference

Transcription

1 Oppenheimer 15th Annual Technology, Internet & Communications Conference Judy Bruner Executive Vice President, Administration & Chief Financial Officer

2 Forward Looking Statements During our meeting today, we will be making forward-looking statements. Any statement that refers to expectations, projections or other characterizations of future events or circumstances is a forward-looking statement, including those relating to revenue, pricing, market share, market growth, product sales, industry trends, expenses, gross margin, future memory technology, production capacity and technology transitions, and future products. Actual results may differ materially from those expressed in these forward-looking statements due to the factors detailed under the caption Risk Factors and elsewhere in the documents we file from time-to-time with the SEC, including our annual and quarterly reports. Reconciliations between Non-GAAP and GAAP results presented are included in the appendix of this presentation. We undertake no obligation to update these forward-looking statements, which speak only as of the date hereof. 2

3 Agenda SanDisk Overview Business Environment & Financial Results 3

4 A Global Leader in Flash Memory Storage Solutions 3 of the Top 7 Storage OEMs are SanDisk Customers Enterprise and Consumer SSDs SanDisk Client SSD Design Wins at 9 Major PC OEMs Close to Half of Industry Bit Output Together with Manufacturing Partner Toshiba * All Leading Handset & Tablet Manufacturers Use SanDisk 2Million+ Units Shipped Daily Global Share Leader The Leading Retail 1 Out of 2 Cards Sold In the U.S. Brand in Key Markets w * Gartner Forecast: NAND Flash Supply and Demand, Worldwide, 1Q11-4Q13, 1Q12 Update, March, NPD Estimate, April, w Estimates from NPD and GfK Retail and Technology, December,

5 Enriching People s Lives Through Digital Storage Anytime, Anywhere 5

6 Key Secular Trends Content Mobility Connectivity Demand for Flash Continued Growth in Units Content Profusion Commercial, Personal More Powerful Mobile Devices More Responsive Data Centers Growth to 38GB Average Per Device By 2016 *SanDisk estimates and Gartner forecast: analysis NAND Flash Update, 1Q 12, March, Only includes devices with 1GB capacity or more as of

7 Serving 3 Mega Markets Mobile Computing Consumer 7

8 Broad Retail Product Portfolio IMAGING COMPUTING MOBILE/ GAMING AUDIO/ VIDEO 8

9 Expanding OEM Product Portfolio Removable Embedded Products & Components Wafers SSD Client & Enterprise 9

10 Vertical Integration Manufacturing Excellence Technology & System Leadership 300 mm NAND Flash Manufacturing Assembly and Distribution Nine NAND flash technology transitions in 10 years Three world-class fabs in partnership with Toshiba World-class product test and assembly facility First to market with X3 on 19 nanometer technology Majority output on advanced 19 nanometer node Ship 2M+ products daily to retail, OEM and enterprise channels ASIC and firmware expertise for memory management Industry leading X3 product mix Oppenheimer 15th Annual Technology, Internet & Communications Conference, Boston. 10

11 Business Environment: 1H-2012 NAND Flash Industry Supply-Demand imbalance led to increased price decline Excess supply Weak OEM mobile card demand Growing concentration of mobile handset market SanDisk Price decline higher than cost decline 1H-2012 Y/Y ASP/GB decline: -48% 1H-2012 Y/Y Cost/GB decline: -36% In Millions $1,600 $1,200 $800 $400 $0 Revenue Q111 Q211 Q311 Q411 Q112 Q212 Operating Margin* Embedded sales down Y/Y due to weakness from certain mobile OEMs and embedded product portfolio realignment SSD sales up sequentially and Y/Y Emerging market retail sales up Q/Q and Y/Y Planned capacity ramp in Phase 1 of Fab 5 completed in January 2012 Ramp paused at 30% of eventual Phase 1 equipment capacity No further capacity ramp during the remainder of % 30% 20% 10% 0% Q111 Q211 Q311 Q411 Q112 Q212 * Operating margin is non-gaap excluding impact of share-based compensation expense and amortization of acquisition-related intangible assets

12 Business Environment: Expectations for Remainder of H-2012: NAND Flash Industry Supply considerations: - Minimal wafer capacity growth Demand considerations: - Stronger seasonality vs. 1H Launch of new smartphone, tablet, Ultrabook, thin and light client devices - Growing client and enterprise SSD adoption Expanded mobile embedded portfolio Share gains at leading mobile OEMs 2H-2012: SanDisk Continued growth in SSD sales Stronger seasonality Expecting a better supply/demand environment 12

13 Strong Balance Sheet Item Gross cash Net cash* Comments $5.3 bil $3.3 bil Cash Flow from Operations positive in 1H 2012 despite reduced profitability Priorities for cash Capex Fab and non-fab - Est. $1.2 bil for 2012 Funding mix: JV working capital & leases: ~$800 mil SanDisk cash: ~$400 mil M&A, Technology investments included: Pliant: $318 mil Technology: $100 mil to date: $69 mil FlashSoft Schooner Share buybacks - $500 mil/5 yr plan established in Q ~$163 mil cumulatively spent through through July 31, 2012 to repurchase ~4.1 mil shares * Net cash equals cash, cash equivalents, short and long-term marketable securities less the maturity value of the Company s outstanding convertible debt

14 Summary 1H-2012 weak, expecting improvement in 2H-2012 Secular market trends Broadening product portfolio Vertical integration Financial strength 14

15 Q&A 15

16 Appendices Basis of Presentation for Non-GAAP to GAAP Reconciliations Non-GAAP to GAAP Reconciliations for Historical Results 16

17 Basis of Presentation for Non-GAAP to GAAP Operating Results 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 (loss) and net income (loss) 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, non-cash change in fair value of the liability component of the repurchased portion of the convertible debt, and tax valuation allowances, we believe the inclusion of non-gaap financial measures provide 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, non-cash change in fair value of the liability component of the repurchased portion of 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. 17

18 Reconciliation of Non-GAAP to GAAP Statement of Operations Three months ended April 3, 2011 (in thousands, except percentages and per share amounts, unaudited) Purchase Convertible % of Share-based Accounting Debt % of Non-GAAP Revenue Compensation Adjustments Interest Other GAAP Revenue Product revenues $ 1,210, % $ - $ - $ - $ - $ 1,210, % License and royalty revenues 83, % , % Total revenues 1,294, % ,294, % Cost of product revenues 736, % (a) 943 (b) , % (a) Amortization of acquisition-related intangible assets - - (a) - 5,116 (c) - - 5, % (a) Total cost of product revenues 736, % (a) 943 5, , % (a) Product gross profit 473, % (a) (943) (5,116) , % (a) Total gross profit 557, % (943) (5,116) , % Research and development 112, % 7,244 (b) , % Sales and marketing 45, % 2,174 (b) , % General and administrative 31, % 4,230 (b) , % Total operating expenses 188, % 13, , % Operating income 369, % (14,591) (5,116) , % Other income (expense) 4, % - - (23,365) (d) - (18,366) (1.4%) Income before income taxes 374, % (14,591) (5,116) (23,365) - 330, % Provision for income taxes 123, % (4,383) (1,867) (8,528) (1,838) (e) 106, % Net income $ 250, % $ (10,208) $ (3,249) $ (14,837) $ 1,838 $ 224, % Net income per share, diluted $ 1.03 $ 0.92 Diluted shares used in computing net income per share 243, ,404 Effective tax rate 33.0% 32.3% (a) Percent of revenue calculations for cost of product revenues and product gross profit are based on product revenues only (license and royalty revenues are excluded). (b) Share-based compensation expense. (c) Amortization of acquisition-related intangible assets, primarily core and developed technology related to acquisitions of Matrix Semiconductor, Inc. (1/06). (d) 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 (e) Income taxes associated with certain non-gaap to GAAP adjustments. 18

19 Reconciliation of Non-GAAP to GAAP Statement of Operations Three months ended July 3, 2011 (in thousands, except percentages and per share amounts, unaudited) 19

20 Reconciliation of Non-GAAP to GAAP Statement of Operations Three months ended October 2, 2011 (in thousands, except percentages and per share amounts, unaudited) 20

21 Reconciliation of Non-GAAP to GAAP Statement of Operations Three months ended January 1, 2012 (in thousands, except percentages and per share amounts, unaudited) Purchase Convertible % of Share-based Accounting Debt % of Non-GAAP Revenue Compensation Adjustments Interest Other GAAP Revenue Product revenues $ 1,473, % $ - $ - $ - $ - $ 1,473, % License and royalty revenues 103, % , % Total revenues 1,576, % ,576, % Cost of product revenues 900, % (a) 1, , % (a) Amortization of acquisition-related intangible assets - - (a) - 13,186 (b) , % (a) Total cost of product revenues 900, % (a) 1,358 13, , % (a) Product gross profit 572, % (a) (1,358) (13,186) , % (a) Total gross profit 676, % (1,358) (13,186) , % Research and development 136, % 10, , % Sales and marketing 52, % 2, , % General and administrative 38, % 3, , % Amortization of acquisition-related intangible assets ,877 (b) - - 1, % Total operating expenses 227, % 17,074 1, , % Operating income 449, % (18,432) (15,063) , % Other income (expense) 24, % - - (21,316) (c) - 2, % Income before income taxes 473, % (18,432) (15,063) (21,316) - 418, % Provision for income taxes 156, % (7,878) (d) (1,840) (d) (7,655) (d) (1,520) (d) 137, % Net income $ 317, % $ (10,554) $ (13,223) $ (13,661) $ 1,520 $ 281, % Net income per share, diluted $ 1.29 $ 1.14 Diluted shares used in computing net income per share 246, ,543 Effective tax rate 33.0% 32.8% (a) Percent of revenue calculations for cost of product revenues and product gross profit are based on product revenues only (license and royalty revenues are excluded). (b) Amortization of acquisition-related intangible assets, primarily core technology, developed technology, customer relationships and trademarks related to acquisition of Matrix Semiconductor, Inc. (1/06) and Pliant Technology, Inc (5/11). (c) Incremental interest expense related 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 (d) Income taxes associated with certain non-gaap to GAAP adjustments. 21

22 Reconciliation of Non-GAAP to GAAP Statement of Operations Three months ended April 1, 2012 (in thousands, except percentages and per share amounts, unaudited) 22

23 Reconciliation of Non-GAAP to GAAP Statement of Operations Three months ended July 1, 2012 (in thousands, except percentages and per share amounts, unaudited) Purchase Convertible Q212 Share-based Accounting Debt Q212 Non-GAAP % of Rev Compensation Adjustment Adjustment Other GAAP % of Rev Product revenues $ 945, % $ - $ - $ - $ - $ 945, % License and royalty revenues 87, % , % Total revenues 1,032, % ,032, % Cost of product revenues 740, %(a) 1, , %(a) Amortization of acquisition-related intangible assets - -(a) - 9,181 (b) - - 9, %(a) Total cost of product revenues 740, %(a) 1,923 9, , %(a) Product gross profit 204, %(a) (1,923) (9,181) , %(a) Gross profit 291, % (1,923) (9,181) , % Research and development 141, % 10, , % Sales and marketing 48, % 3, , % General and administrative 33, % 4, , % Amortization of acquisition-related intangible assets ,244 (b) - - 2, % Total operating expenses 224, % 18,330 2, , % Operating income 67, % (20,253) (11,425) , % Other income (expense), net 5, % - - (22,355) (c) (17,197) -1.7% Income before taxes 73, % (20,253) (11,425) (22,355) - 18, % Provision for income taxes 21, % (4,676) (d) (239) (d) (8,137) (d) (2,837) (d) 6, % Net income $ 51, % $ (15,577) $ (11,186) $ (14,218) $ 2,837 $ 12, % Net income per share, diluted $ 0.21 $ 0.05 Diluted shares used in computing net income per share 244, ,570 Effective tax rate 30.0% 23.1% 2.1% 36.4% 31.7% (a) Percent of revenue calculations for cost of product revenues and product gross profit are based on product revenues only (license and royalty revenues are excluded). (b) Amortization of acquisition-related intangible assets, primarily core technology, developed technology, customer relationships and trademarks related to the acquisitions of 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 Note due 2013 and 1.5% Sr. Convertible Note due (d) Income taxes associated with certain non-gaap to GAAP adjustments. 23

24 SanDisk, CompactFlash, SanDisk Extreme, SanDisk Ultra, SanDisk Extreme Pro, Sansa logo and Lightning are trademarks of SanDisk Corporation and/or its subsidiaries, registered in the United States and other countries. inand, inand Ultra, inand Extreme, FlashSoft and the Schooner Information Technology mark and logo are trademarks of SanDisk Corporation and/or its subsidiaries. The SD, SDHC, SDXC, microsd, microsdhc and microsdxc logos are trademarks of SD-3C, LLC. Other brand names mentioned herein are for identification purposes only and may be trademarks of their respective holder(s). *1 gigabyte (GB)=1 billion bytes. Some capacity not available for data storage SanDisk Corporation. All rights reserved. 24