SanDisk Announces Record Fourth Quarter Revenues and Operating Income

SanDisk Announces Record Fourth Quarter Revenues and Operating Income

    Business Editors/High-Tech Writers

    SUNNYVALE, Calif.--(BUSINESS WIRE)--Jan. 27, 2005--SanDisk Corporation (NASDAQ:SNDK):

--	Revenue of $549 million; EPS $0.42
--	Units up 45% and Megabytes up 110% sequentially from prior quarter
--	Product Gross Margin increases 3 points to 32%; Operating Margin 23%
--	Strong consumer sales into Digital Cameras, Flash Drives, Mobile Handsets and Digital Audio Players

    SanDisk(R) Corporation (NASDAQ:SNDK), the world's largest supplier of flash storage card products, today announced results for the fourth quarter ended January 2, 2005. Total fourth quarter revenues increased 41% on a year-over-year basis to $549 million and increased 35% compared to the third quarter of 2004. Fourth quarter net income, which reflected a 37% tax rate, was $78 million compared to $88 million of net income in the fourth quarter of 2003, which reflected a 20% tax rate, and $54 million of net income in the third quarter of 2004. Fully diluted earnings per share for the fourth quarter were $0.42 compared with $0.47 in the fourth quarter of 2003 and $0.29 in the third quarter of 2004.
    Total revenue for fiscal 2004 was $1.8 billion, up 65% from $1.1 billion in 2003. Product revenues were $1.6 billion, up 63% from $1.0 billion in 2003. License and royalty revenues were $174 million, up 79% from $97 million in 2003. Net income was $267 million, up 58% from net income of $169 million in 2003. The provision for income tax was 37% for 2004 compared to 30% in 2003. Fully diluted earnings per share for fiscal 2004 were $1.44, compared to $1.02 in 2003.
    "SanDisk experienced outstanding results in our fourth quarter due to strong demand for our products in digital cameras, USB flash drives, mobile handsets and our new line of flash digital audio players," said SanDisk CEO Eli Harari. "In the fourth quarter we sold 110% more megabytes than in the prior quarter by successfully shifting consumer preference to our higher capacity cards. Higher yields on our 90-nanometer NAND/MLC, and higher unit volumes allowed us to aggressively reduce our costs and improve operating margins by almost 3% in the quarter despite a 34% sequential decline in the average price per megabyte."
    "In 2005 we will continue our focus on three areas. First, driving growth in our target consumer and handset markets, including the new storage opportunities in handsets, flash digital audio players, video games, second generation intelligent flash drives, and crypto-secure cards. Second, building our brand and expanding our global sales channels beyond 100,000 storefronts. Third, executing the transition of our captive volume production from 90-nanometer to 70-nanometer NAND/MLC, as well as ramping the new 300-millimeter flash fab, both currently scheduled to commence in the second half of 2005. I am optimistic about the rapidly expanding and pervasive use of our storage technology and products in numerous emerging markets and applications over the next several years."

    Financial Results and Highlights

    -- Revenue was a record $549 million in the fourth quarter, up
    35% sequentially and 41% year-over-year.

    -- Megabytes sold in the fourth quarter increased a record 110%
    sequentially and increased 228% year-over-year. Total
    megabytes sold in 2004 were approximately 167% higher than in
    2003.

    -- Units sold in the fourth quarter increased 45% sequentially
    and increased 55% year-over-year. Units sold in 2004 were 53%
    higher than in 2003.

    -- Average density per card sold in retail increased to
    356Megabytes (MB) in the fourth quarter from 254MB in the
    third quarter. Average density per card doubled from the
    fourth quarter of 2003 to the fourth quarter of 2004.

    -- Average price per megabyte sold in the fourth quarter declined
    34% sequentially and 56% from the corresponding quarter in
    2003. Total average price per megabyte sold in 2004 declined
    38% from 2003.

    -- Product gross margin in the fourth quarter was 32%, compared
    to 29% in the third quarter of 2004 and 36% in the fourth
    quarter of 2003.

    -- Operating income was a record $126 million, or 23% of
    revenues, compared to $84 million, or 21% of revenue, in the
    prior quarter, and $109 million, or 28% of revenues, in the
    fourth quarter of 2003. Operating income for 2004 was $419
    million, up 63% from operating income of $257 million in 2003,
    and operating margin was consistent in both years at 24%.

    -- Digital Audio Players were successfully launched during the
    holiday season.

    -- Greg Rhine joined SanDisk as Senior Vice President, Worldwide
    Sales.

    -- Storefronts grew to more than 100,000 from 60,000 at the
    beginning of the year.

    -- SanDisk's revenue share for the US Memory Card Market grew to
    46% in the fourth quarter of 2004 from 38% in the fourth
    quarter of 2003 and USB flash drive share increased to 38%
    from 22% for the same periods according to data from NPD
    Techworld, a division of the NPD Group.

    -- SanDisk acquired MDRM to accelerate development of end-to-end
    solutions for distributing secure content through flash memory
    devices.

    -- Flash Partners, a Toshiba and SanDisk venture, secured lease
    financing agreements for manufacturing equipment to be
    installed in the new Fab 3.

    Scheduled Interview

    SanDisk Corporation President and CEO, Eli Harari, is scheduled to appear on CNBC's "Closing Bell With Maria Bartiromo" today, January 27, 2005 at approximately 4:20 p.m. Eastern Time.

    Conference Call

    SanDisk's fourth quarter 2004 conference call is scheduled for 2:00 p.m. Pacific Time, Thursday, January 27, 2005. The conference call will be web cast by CCBN and can be accessed live, and throughout the quarter, at SanDisk's website at www.sandisk.com/IR and at www.streetevents.com for registered streetevents.com users. To participate in the call via telephone, the dial in number is (800) 289-0569 or (913) 981-5542 for international callers. The call will also be available by telephone replay through Tuesday, February 1, 2005, by dialing (888) 203-1112 or, for international callers, (719) 457-0820 and entering the pass code 270480. A copy of this press release will be filed with the Securities and Exchange Commission on a current report on Form 8-K and will be posted to our website prior to the conference call.

    Forward-Looking Statements

    This news release contains certain forward-looking statements, including our business outlook, expectations for new product introductions, applications, markets, customers and the transition and augmentation of our captive manufacturing capacity that are based on our current expectations and involve numerous risks and uncertainties that may cause these forward-looking statements to be inaccurate and may significantly and adversely affect our business, financial condition and results of operations. Risks that may cause these forward-looking statements to be inaccurate include among others: market demand for our products may grow more slowly than our expectations or a slower adoption rate for these products in new markets that we are targeting, slower than expected expansion of our global sales channels, fluctuations in operating results, unexpected yield variances and longer than expected low yields and other possible delays related to our conversion to 70-nanometer NAND flash technology or the ramp up of the new 300-millimeter flash fabrication facility, any interruption of or delay in supply from any of the semiconductor manufacturing facilities that supply products to us, our inability to make additional planned smaller geometry conversions in a timely manner, future average selling price erosion that may be more severe than our expectations due to possible excess industry capacity of flash memory either from existing suppliers or from new competitors, price increases from non-captive flash memory sources and third-party subcontractors, higher than expected operating expenses, higher than anticipated capital, adverse global economic and geo-political conditions, including adverse currency exchange rates and acts of terror, the timely development, internal qualification and customer acceptance of new products that are based on the 90-nanometer and 70-nanometer NAND technologies, fluctuations in license and royalty revenues, higher than anticipated tax rates, regulatory duties or fees, business interruption due to earthquakes or other natural disasters, particularly in areas in the Pacific Rim and Japan where we manufacture and assemble products, further impairment of our investments in Tower Semiconductor Ltd. due to any decline in stock valuations, and the other risks detailed from time-to-time in our Securities and Exchange Commission filings and reports, including, but not limited to, the Form 10-K for the year ended December 28, 2003 and our quarterly reports on Form 10-Q. Future results may differ materially from those previously reported. We do not intend to update the information contained in this release.

    About SanDisk

    SanDisk is the original inventor of flash storage cards and is the world's largest supplier of flash data storage card products using its patented, high-density flash memory and controller technology. SanDisk is headquartered in Sunnyvale, CA and has operations worldwide, with more than half its sales outside the U.S.

    www.sandisk.com

    SanDisk is a trademark of SanDisk Corporation, registered in the United States and other countries. Other brand names mentioned herein are for identification purposes only and may be the trademarks of their respective holders.

SanDisk Corporation Condensed Consolidated Statements of Income (In thousands, except per share data)

Three Months Ended Twelve Months Ended ----------------------- ---------------------- January 2, December January 2, December 2005 28, 2003 2005 28, 2003 (unaudited) (unaudited) (unaudited) ----------- ----------- ----------- ---------- Revenues: Product $507,697 $353,403 $1,602,836 $982,341 License and royalty 41,186 35,892 174,219 97,460 ----------- ----------- ----------- ---------- Total revenue 548,883 389,295 1,777,055 1,079,801

Cost of product revenues 345,130 224,681 1,091,350 641,189 ----------- ----------- ----------- ---------- Gross profits 203,753 164,614 685,705 438,612

Operating expenses: Research and development 35,580 25,263 124,994 84,200 Sales and marketing 25,830 21,251 91,296 66,317 General and administrative 16,325 9,210 50,824 31,057 ----------- ----------- ----------- ---------- Total operating expenses 77,735 55,724 267,114 181,574

Operating income 126,018 108,890 418,591 257,038

Interest income 6,824 3,243 20,363 8,865 Interest expense (884) (1,687) (5,949) (6,750) (Loss) gain on investment in foundries (11,977) 667 (12,927) 3,746 Recovery (loss) on unauthorized sale of UMC shares 6,193 - 6,193 (18,339) Other income (loss), net (1,832) (1,617) (3,071) (2,679) ----------- ----------- ----------- ---------- Total other income (expense) (1,676) 606 4,609 (15,157)

Income before taxes 124,342 109,496 423,200 241,881

Provision for income taxes 46,007 21,658 156,584 73,022 ----------- ----------- ----------- ---------- Net income $78,335 $87,838 $266,616 $168,859 =========== =========== =========== ==========

Net income per share calculation: Net income used in computing basic net income per share $78,335 $87,838 $266,616 $168,859 Tax-effected interest and bond amortization costs related to convertible subordinated notes 1,757 1,530 5,368 5,469 ----------- ----------- ----------- ---------- Net income used in computing diluted net income per share $80,092 $89,368 $271,984 $174,328 =========== =========== =========== ==========

Shares used in computing net income per share Basic 170,869 159,883 164,065 144,781 Diluted 188,675 190,251 188,837 171,616

Net income per share Basic $0.46 $0.55 $1.63 $1.17 Diluted $0.42 $0.47 $1.44 $1.02

SanDisk Corporation Condensed Consolidated Balance Sheets (In thousands)

January 2, September December 2005 26, 2004 28, 2003(a) (1) (1) ASSETS (unaudited) (unaudited) ----------- ----------- ----------- Current Assets: Cash and cash equivalents $463,795 $602,183 $734,479 Short-term investments 859,175 748,830 528,117 Investment in foundries 20,398 23,541 36,976 Accounts receivable, net 194,535 136,156 184,236 Inventories 196,422 181,329 116,896 Deferred tax asset 83,150 94,827 70,806 Prepaid expenses, other current assets and tax receivable 62,653 29,809 53,394 ----------- ----------- ----------- Total current assets 1,880,128 1,816,675 1,724,904

Property and equipment, net 147,231 137,663 59,470 Investment in foundries 14,377 22,599 40,446 Investment in FlashVision 178,681 165,996 169,185 Investment in FlashPartners 24,192 56 - Deferred tax asset 1,861 - - Note receivable, Flash Vision 35,413 32,969 - Deposits and other non-current assets 38,297 36,060 46,151 ----------- ----------- ----------- Total Assets $2,320,180 $2,212,018 $2,040,156 =========== =========== ===========

LIABILITIES AND STOCKHOLDERS' EQUITY:

Current Liabilities:

Accounts payable $82,974 $113,949 $88,737 Accounts payable to related parties 48,115 55,438 45,013 Accrued payroll and related expenses 41,786 30,026 28,233 Income taxes payable 39,139 2,467 37,254 Research and development liability, related party 5,549 9,700 11,800 Other accrued liabilities 45,584 37,248 36,661 Deferred income on shipments to distributors and retailers and deferred revenue 90,307 96,290 99,136 ----------- ----------- ----------- Total current liabilities 353,454 345,118 346,834

Convertible subordinated notes payable - 150,000 150,000 Deferred tax liability - 10,469 1,458 Deferred revenue and other non- current liabilities 26,576 22,837 25,992 ----------- ----------- ----------- Total Liabilities 380,030 528,424 524,284

Commitments and contingencies

Stockholders' Equity: Preferred stock - - - Common stock 1,406,553 1,230,990 1,207,958 Retained earnings 520,240 441,905 253,624 Accumulated other comprehensive income 18,893 11,614 54,290 Deferred compensation (5,536) (915) - ----------- ----------- ----------- Total stockholders' equity 1,940,150 1,683,594 1,515,872 ----------- ----------- -----------

Total Liabilities and Stockholders' Equity $2,320,180 $2,212,018 $2,040,156 =========== =========== ===========

(a) Information derived from the audited Consolidated Financial Statements. (1) Certain reclassifications have been made to conform to the current year's presentation.

SanDisk Corporation Consolidated Comparative Statement of Cash Flows December 2004 (in thousands)

Three months ended Twelve months ended January 2, December 28,January 2, December 28, 2005 2003 2005 2003 (unaudited)(unaudited) (unaudited) ---------------------------------------------- Cash flows from Operating activities: Net income $78,335 $87,838 $266,616 $168,859 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 12,452 6,798 38,862 22,952 Provision for doubtful accounts 1,739 512 4,581 1,400 Amortization bond issuance costs 1,907 230 2,567 890 Deferred Taxes (5,842) 0 1,740 2,152 Recovery (loss) on authorized sale of UMC shares (6,193) 0 (6,193) 18,339 Loss (gain) investment in foundries 11,977 (667) 12,927 (3,746) Other non-cash charges (2,452) (1,975) (3,848) (1,452) Changes in operating assets and liabilities: Accounts receivable (60,118) (44,802) (14,880) (104,550) Other receivables and tax refund receivable 364 19,897 8,526 21,460 Inventories (15,093) (22,137) (79,526) (28,301) Prepaid expenses, deposits and other assets (31,474) (21,179) (6,859) (16,316) Income taxes payable and other accounts payable 31,022 20,260 2,825 93,996 Other current liabilities, related party (7,323) 16,361 3,102 27,811 Other current liabilities 8,336 3,836 8,923 9,196 Research and development liabilities, related parties (4,151) 5,300 (6,251) 1,293 Deferred income on shipments and deferred revenue (7,588) 38,229 (15,489) 57,682 Other non-current liabilities 5,344 0 6,244 (1,225) ---------------------------------------------- Total adjustments (67,093) 20,663 (42,749) 101,581 ----------------------------------------------

Net cash provided by operating activities 11,242 108,501 223,867 270,440 ----------------------------------------------

Cash flows from Investing activities: Purchases of short term investments (223,398) (304,623)(1,142,508) (620,488) Proceeds from sale of short term investments 111,714 151,912 810,111 327,457 Investment in FlashPartners (23,059) 0 (23,129) 0 Business acquisition (9,061) 0 (9,061) 0 Recovery on UMC unauthorized sale 6,193 0 6,193 0 Investment in foundries and equity investments, net 0 (3,819) (1,430) 17,878 Acquisition of capital equipment (18,467) (16,115) (126,406) (58,495) Loan to Flash Vision 0 0 (32,969) 0 ---------------------------------------------- Net cash used in investing activities (156,078) (172,645) (519,199) (333,648) ----------------------------------------------

Cash flows from financing activities: Procceds from secondary offering of common stock 0 521,608 0 521,608 Employee stock programs 6,448 19,528 24,648 55,294 ---------------------------------------------- Net cash provided by financing activities 6,448 541,136 24,648 576,902 ----------------------------------------------

Net increase (decrease) in cash and cash equivalents (138,388) 476,992 (270,684) 513,694

Cash and cash equivalents at beginning of period 602,183 257,487 734,479 220,785

---------------------------------------------- Cash and cash equivalents at end of period $463,795 $734,479 $463,795 $734,479 ==============================================

Additional information: Net change in cash and cash equivalents $(138,388) $476,992 $(270,684) $513,694 Net change in short- term investments 110,345 152,641 331,058 292,411 ---------------------------------------------- Net change in cash, cash equivalents and short-term investments $(28,043) $629,633 $60,374 $806,105 ==============================================

--30--KG/np*

CONTACT: SanDisk Lori Barker Padon (Investors), 408-542-9565 or Mike Wong (Media), 408-548-0223

KEYWORD: CALIFORNIA INDUSTRY KEYWORD: HARDWARE EARNINGS CONFERENCE CALLS SOURCE: SanDisk Corporation

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