SanDisk Announces Record Fourth Quarter Revenues and Operating Income

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.