Market Overview

Some Highlights from SanDisk's Q4 Conference Call


Below are a few of the highlights from SanDisk's (NASDAQ: SNDK) fourth-quarter conference call:

  • 2013 retail revenues set a new annual record with our retail products achieving substantial share gain in key markets globally.
  • Powerful secular trends for NAND Flash adoption translated into outstanding financial results
  • Enterprise SSDs set a new revenue record in the fourth quarter with strong customer adoption of our lightning SAS drive, as well as a full quarter of enterprise SSD revenue from our SMART Storage Systems acquisition.
  • Consumer preference for high performance, slim form factor, long battery life andinstant-on capability continues to drive higher attach rates of our solid state storage solutions in notebook PCs
  • our expanded portfolio of embedded solutions, which includes our discrete iNAND, iNAND MCP and custom solutions, drove significant growth for us across 2013
  • saw strength in retail sales amid USB flash drives and a rich mix of high performance mobile cards.
  • In terms of supply growth, we continue to estimate the industry bit growth in 2014 to be approximately 40%, the same as our estimate of the 2013 industrybit growth. SanDisk supply bit growth in 2013 was 18% and we estimate our 2014 supply bit growth range to be between 25% and 35%,
  • 2013 was a stellar year for the company as they executed well on their strategy to grow there mix of high value solutions. Looking forward to 2014, they believe the secular demand drivers for NAND Flash remain healthy, and they're energized to capitalize on the opportunities that lie ahead of them
  • Outstanding results for Q4 and the full year. SNDK saw 22% 2013 revenue growth with 22% gigabyte growth and 0 change in they're average selling price per gigabyte. By increasing the mix of high-value solutions, while maintaining disciplined capacity management, the company was able to achieve substantial revenue growth with modest bit supply growth and this was a key factor in they're record free cash flow.
  • Fourth quarter revenue of $1.73 billion grew 12% year-over-year and was comprised of gigabyte growth of 13% and price decline of 2%. On a sequential basis, there gigabyte growth was 12% and there price decline was 6%. The sequential price decline in Q4 reflected, in part, a seasonally higher mix of retail sales, which carry a lower average price per gigabyte.
  • Fourth quarter revenue mix by channel was 62% commercial and 38% retail, reflecting a sequential increase in retail mix of 3 percentage points. There fourth quarter retail revenue grew 16% sequentially and 18% year-over-year.
  • The year-over-year retail growth was driven by mobile cards, USBs and SSDs.
  • SNDK gained significant global retail share, there revenue growing nearly at the same rate as our commercial revenue and maintain a 2013 retail mix of 37%, the same as in 2012, fourth quarter commercial revenue grew 1% sequentially and 8% year-over-year. The year-over-year commercial growth was driven by a strong increase in SSD revenue, both client and enterprise, partially offset by a decline in mobile revenue. Looking at the mobile revenue from the commercial channel, card sales were down year-over-year due to continued OEM de-bundling and there reduced supply to white label channels.
  • There commercial channels were down on a year-over-year basis, SNDK more than made up for this in sales of after-market retail mobile cards and total Q4 mobile cards revenue was up quite nicely year-over-year
  • Fourth quarter mobile embedded revenue was down year-over-year due to lower sales of custom-embedded solutions. Within embedded sales, iNAND and MCP iNAND revenue was up year-over-year driven by growing demand for entry level and mid-tier mobile devices.
  • SSDs now account for nearly a third of commercial sales and adding in retail SSDs we are thrilled that SSDs achieved a 21% mix of our total Q4 revenue.
  • All channels within 2013 achieved revenues of $6.17 billion, embedded revenues grew 37%. Removable product revenue declined 2% and SSD revenue grew 170%.
  • Turning to gross margin, non-GAAP gross margin of 50.9%
  • Q4 non-GAAP operating expenses increased $41 million sequentially to $323 million, slightly higher than previous forecast of $310 million to $320 million. The sequential increase included certain one-time expenses in R&D of 11 million, seasonal expenses of approximately $6 million, and higher bonus expense of $5 million related to our strong 2013 results. The remaining sequential increase relates to a full quarter versus partial quarter of SMART Storage Systems expenses and increased head count and engineering materials.
  • Our non-GAAP operating expenses for the full year were 18.2% of revenue, within our target model of 17% to 19%. Non-GAAP operating margin was an outstanding 32% for Q4 and 29% for the full year and SNDK set quarterly and annual rate records for operating income dollars on both a non-GAAP and GAAP basis.
  • Turning to cash flow, Q4 cash flow from operations was a record $617 million, bringing the full year to a record $1.86 billion. $41 million of cash was used during the quarter for capital investments inclusive of the fab joint ventures, bringing free cash flow to $576 million for Q4 and $1.7 billion for the full year. 2013 free cash flow was 28% of revenue and over $7 per share. For 2013, total fab and non-fab capital investments were $859 million and total cash investment was $138 million with the remainder of the investment funded by the joint ventures.
  • 2013, SNDK spent nearly $1.6 billion on share repurchases and $100 million on there quarterly dividend, which was instituted in the third quarter. In total, 2013 return of cash to shareholders was 98% of free cash flow.
  • Forward-looking commentary for Q1 and 2014. First quarter revenue estimate is $1.450 billion to $1.525 billion and there full year estimate is $6.4 billion to $6.8 billion.
  • Turning to gross margins, they expect there 2014 cost reduction to be less than the 20% generated in 2013, likely towards the low end of the 15% to 25% range, non-GAAP gross margin estimates for the first quarter is 47% to 49%, which reflects a lower revenue level and a lower mix of high margin retail sales.
  • For the full year 2014, they expect there non-GAAP gross margin to be similar to there full year 2013 results, with a non-GAAP gross margin range of 45% to 48%.
  • They expect expenses for 2014 to be in the upper part of there 17% to 19% target range
  • For the full year, they forecast non-GAAP operating expenses of $1.225 billion to $1.250 billion with the first quarter being $300 million to $310 million.
  • There total capital investment for 2014 is expected to be between $1.5 billion and $1.7 billion with cash requirements being approximately half of this amount.
  • Finally, there non-GAAP tax rate for 2014 is forecasted at 31.5%, slightly higher than in 2013 due to the expiration of the U.S. R&D tax credit. In summary, they delivered outstanding 2013 results with 22% revenue growth, 29% non-GAAP operating margins, and $1.7 billion of free cash flow and they returned 98% of that free cash flow to there shareholders.

Posted-In: Earnings


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