SanDisk Conference Call Highlights

SanDisk

reported its third quarter earnings. Shares of the company are three percent. Below are some key highlights from its conference call. • We expect our enterprise SSD revenue to surpass $1 billion in 2015. • The Fusion-io business performed in line with our expectations post-acquisition. • On the products front, multiple OEMs have now qualified and are offering our next generation Fusion-io PCIe products. • Our combined sales from enterprise and client SSDs drove 27% of our third quarter revenue. • Turning to mobile embedded, the launch of several new smartphones containing our embedded solutions enabled healthy sequential revenue growth with particular strength from sales growth of custom embedded solutions. • We continue to see multiple strong growth drivers for flash and the demand outlook remains robust. • Our estimate of industry supply bit growth for 2014 is slightly below 40%, and SanDisk captive bit supply will be slightly below 25%. • For the industry, our estimates for 2015 supply bit growth are also in the range of 30% to 40%. • Financials: • Q3 was another strong quarter for SanDisk, with revenue growing 7% year-over-year to an all-time record of $1.75 billion. • On a year-over-year basis, our commercial channel revenue grew 13% while retail revenue was down 2%. • Sequentially, our commercial revenue grew 8% driven by embedded growth. And our retail revenue grew 5%, driven by back to school USB sales and mobile cards. • Looking at revenue by product category, our SSD revenue grew 48% year-over-year with the strongest growth coming from enterprise SSDs. • Total capital return stands at 95% of free cash flow, and we have repurchased 8.75 million shares. • On the balance sheet, our inventory dollars grew by $30 million sequentially. Guidance: • We have strong demand signals from our customers in all key product categories. • We expect to further reduce our captive inventory levels in Q4 to fulfill demand, however, we expect to be in supply allocation and this will constrain our growth in some areas in Q4. • We will prioritize our business according to our strategic priorities and customer relationship. • Our fourth quarter revenue forecast is $1.8 billion to $1.85 billion. • As we look to 2015, we plan to increase our supply bit growth from less than 25% this year to a range of 30% to 40%. • For Q4, we expect our non-GAAP gross margin to be between 47% and 49. • We expect Q4 non-GAAP operating expenses of $380 million to $390 million. • Q4 non-GAAP other income is forecasted at approximately $3 million, and we expect our non-GAAP tax rate to be equal to the Q3 rate of 31.2%. • We are refining our estimate of 2014 capital investments from $1.4 billion to • $1.3 billion, with Q4 gross investments expected to be approximately $400 million inclusive of both joint venture and non-Fab investments. • The fourth quarter cash usage for capital investments is expected to be approximately $150 million, bringing the full year cash usage for capital investments to approximately $350 million for the combination of joint venture and non-Fab investments.