SUNNYVALE, CA, April 17, 2002 - SanDisk Corporation (NASDAQ:SNDK), the world's largest supplier of flash memory data storage products, today announced results for its first quarter ended March 31, 2002. Total first quarter revenues were $92.6 million, compared to $91.9 million in the fourth quarter of 2001. Product revenues were $86.5 million, up 4% from the prior quarter. First quarter revenues from licenses and royalties were $6.2 million, down from $8.6 million in the prior quarter. The current quarter loss before taxes was $16.9 million, or $0.24 per diluted share compared to a loss before taxes of $15.8 million, or $0.22 per diluted share in the fourth quarter. Net loss in the first quarter of 2002 was $3.7 million, or $0.05 per share on a diluted basis and included a $13.2 million tax benefit provision, or $0.19 per diluted share, of which $11.1 million was generated by an unrealized first quarter appreciation in the value of the Company's equity investment in UMC. This compares to net income in the fourth quarter of 2001 of $25.6 million, or $0.36 per diluted share, which included a tax benefit of $41.5 million, or $0.59 per diluted share, of which $29.7 million related to the unrealized gain on the Company's investment in UMC.
Product gross margin for the first quarter of 2002 was positive 6%. Revenue per megabyte declined by 15% quarter to quarter, compared to a 24% decline in the prior quarter. This decline in average selling prices was offset by lower product costs in the first quarter. First quarter total units sold increased 21% and megabytes sold increased 28% compared to the previous quarter, both representing new record levels.
Total first quarter revenues decreased 9% from $101.3 million in the first quarter of 2001. Product revenues declined 2% from $88.1 million in the same period of the prior year. Revenues from licenses and royalties decreased 53% from $13.2 million in the first quarter of 2001 and reflect lower royalty bearing sales by licensees. The first quarter 2002 net loss of $3.7 million compares to a net loss of $143.1 million, or $2.11 per diluted share, for the first quarter of 2001, which included an unrealized after tax loss of $114.0 million on the decline in value of the Company's investment in UMC.
"Business conditions in the first quarter continued the positive trend of higher bookings and more stable pricing that began in the fourth quarter," said Dr. Eli Harari, President and CEO of SanDisk. "New bookings for the retail channel continued at a strong pace throughout the quarter, driven primarily by relatively strong sales of Digital Cameras. We experienced a substantial pick-up in OEM sales, which made up for the small seasonal decline in retail sales. Price declines are continuing to moderate due to the increased demand bringing better balance with existing supply of flash memory. Although we still depend on turns business for the majority of our projected retail sales, new orders from OEM customers and industrial distributors have picked up from depressed levels experienced in 2001.
"Product gross margins are projected to continue to improve in the next several quarters due primarily to our technology driven cost reduction programs. Inventory management improved during the quarter and we continued to control discretionary spending. We are proceeding with the consolidation of our FlashVision production at Toshiba's Yokkaichi fabrication facility in Japan and believe that this consolidation will give us a more competitive cost structure. We expect production to start at the new FlashVision in Japan in the third quarter of 2002, ramping up to full output volumes early in 2003. In April 2002, after exercising its early termination option, FlashVision paid off its lease arrangements with ABN AMRO. Interim financing in the form of a bridge loan from Toshiba is in place and we anticipate that FlashVision will finalize a new lease arrangement by the end of May. Accordingly, SanDisk is no longer subject to the financial covenants or collateralization requirements of the ABN lease.
"Assuming the current favorable market conditions continue, we expect product revenues and product gross margins to grow moderately in the second quarter due to lower product costs and the launch of new products such as the Cruzer. We are cautiously optimistic about the second half outlook for continuing gradual improvements in sequential quarterly sales and product gross margins, which could lead to operating profitability sometime in the second half of 2002."
This news release contains certain forward looking statements including our expectations for future product revenues and bookings, earnings and profitability, product demand, average selling prices, gross margins, and timing of market recovery 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: future average selling price erosion due to excess industry capacity and extreme price competition; increased expenses and fluctuations in operating results and yields related to the startup of flash memory wafer production for FlashVision at the Yokkaichi foundry in Japan; potential delays in starting up production of NAND flash memory wafers at Yokkaichi which may reduce our available supply of flash memory and cause us to not be able to meet customer demand for our flash products; our increased exposure to interruption of supply due to our increased dependence on a geographic sole source at Yokkaichi for our supply of NAND flash memory; the current global economic conditions in general and in our markets in particular; the timely development, internal qualification and customer acceptance of new products based on the 1 Gigabit NAND MLC (Multilevel cell) .16 micron flash chips that SanDisk is obligated to purchase from FlashVision; fluctuations in royalty revenues due to industry wide declines in demand for flash memory products which reduce royalty bearing sales of our licensees; the timely introduction and acceptance of new consumer products that incorporate our flash storage devices; slower than expected growth in the emerging markets for our products which may result in reduced sales and increased inventory; successful management of assembly operations in China and Taiwan; the unknown economic impact of the recent terrorist attacks and the military response thereto; seasonality of product sales; success in developing brand name preference and an efficient distribution system for SanDisk's products in the retail channel; the successful launch of our Secure Digital, Cruzer, Memory Stick and Ultra CompactFlash card products; and the other risks detailed from time to time in our Securities and Exchange Commission filings and reports, including, but not limited to, the Annual Report on Form 10-K for the year ended December 31, 2001. Future results may differ materially from those previously reported. We assume no obligation to update the information contained in this release.
SanDisk Corporation, the world's largest supplier of flash data storage 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 first quarter 2002 conference call is scheduled for 2:00 p.m. PDT, Wednesday, April 17th. The phone number is (973) 321-1040. The conference call is being webcast by CCBN and can be accessed at SanDisk's website at and at www.streetevents.com for institutional investors. The webcast will be available until Monday, April 22, 2002, at 8:00 a.m. Pacific Time.
CompactFlash and CF are trademarks of SanDisk Corporation.