4/18/2003 - SanDisk Corporation (NASDAQ:SNDK), the world's largest supplier of flash memory data storage card products, announced results for its first quarter ended March 31, 2003. Total first quarter revenues were $174.5 million, up 88% compared to the first quarter of 2002. Product revenues were $155.4 million, up 80% from $86.5 million in the same period of the prior year. First quarter total units sold increased 96%, total megabytes sold increased 205% and the average price per megabyte sold declined 40% compared to the same period of the prior year. Revenues from licenses and royalties were $19.0 million in the first quarter of 2003, up from $6.2 million in the same period of the prior year due primarily to increased royalty-bearing sales by licensees. First quarter net income was $24.9 million, net of unrealized losses of $6.7 million, before tax, resulting from revaluation of our equity investments in Divio and Tower Semiconductor. This compares to a net loss of $3.7 million in the first quarter of 2002. Earnings per share for the first quarter of 2003 were $0.33 per diluted share compared to a net loss of $0.05 per diluted share in the same period in 2002.
Product revenues for the first quarter of 2003 decreased 2% sequentially from the prior quarter. Growth in OEM sales of 30% partially offset a seasonal decline in retail sales of 13% compared to the fourth quarter of 2002. First quarter total units sold increased 10% and total megabytes sold increased 29% compared to the previous quarter, both representing new record levels. First quarter product gross margins were 34%, down from 37% in the prior quarter. Average price per megabyte sold declined by 24% in the first quarter and was offset by comparable product cost reductions achieved during the quarter. First quarter sales of NOR flash inventory that was previously written off contributed 0.7% to product gross margins compared to 2% in the prior quarter. Revenues from licenses and royalties declined 10% from the prior quarter due to lower royalty-bearing sales by our licensees. Income before taxes of $27.6 million in the first quarter compares with $27.5 million in the prior quarter. In the first quarter of 2003, our provision for income taxes declined by $5.1 million due to a lower effective tax rate. This caused our net income to increase to $24.9 million in the first quarter from $19.6 million in the prior quarter.
Net cash provided by operating activities was $34.0 million for the first quarter of 2003 compared to $3.6 million used in operating activities in the same quarter of 2002. Our cash and short-term investment position increased $28.0 million from the prior quarter to $484.5 million.
"The first quarter was another excellent quarter for SanDisk. Results were better than expected considering the normal seasonal decline in first quarter retail sales compared to our traditionally strong fourth quarter. We experienced a significant increase in sales to our OEM customers, which reached the highest sales level in the past eight quarters," said Eli Harari, President and CEO of SanDisk Corporation. "During the quarter we introduced a number of important new products, including the miniSD card, which we believe will become a significant revenue generator for us in new cell phones with built-in digital cameras that are expected to be introduced this year. During the first quarter, we were able to move the retail market average card capacity to 120 megabytes, up from 90 megabytes in the prior quarter, through strategic pricing of higher capacity cards, where we enjoy the low cost benefits of our MLC (Multi Level Cell) NAND flash. Consumers are proving the significant price elasticity inherent to our business. We are currently on schedule to shift the majority of our NAND flash wafer starts at Yokkaichi from .16 micron to .13 micron in the second quarter. This transition should provide us with a lower cost structure for wafers manufactured by our FlashVision joint venture in Yokkaichi, starting in the third quarter of this year and continuing into 2004. With the projected growth in the usage of flash cards in digital cameras, cell phones and USB flash drives, we are optimistic about the prospects for our business in 2003."
Second quarter 2003 business outlook
Retail sales are expected to be back-end loaded in the second quarter, while OEM sales are projected to continue the positive trend started in the first quarter. We currently anticipate second quarter 2003 total revenues to be approximately the same as the first quarter of 2003. Product gross margins are projected to be in the range of 26% to 30% due to the incremental costs that we expect to incur in the second quarter associated with the .13 micron NAND flash technology transition at FlashVision. Second quarter 2003 operating expenses are expected to increase moderately compared to the first quarter and our second quarter effective tax rate is expected to be consistent with the first quarter.
SanDisk Corporation, the world's largest supplier of flash memory data storage card products, designs, manufactures and markets industry-standard, solid-state data, digital imaging and audio storage products using its patented, high-density flash memory and controller technology. SanDisk is based in Sunnyvale, CA.
SanDisk's web site/home page address: http://www.sandisk.com
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