SanDisk’s (SNDK) third quarter 2010 earnings of $1.37 per share exceeded the Zacks Consensus Estimate of $1.08.
Revenue
Total revenue for the fourth quarter was $1.33 billion, up 7.0% on a year-over-year and 8.0% on a sequential basis. Revenue for the quarter was above the company’s guidance range of $1.25 billion to $1.32 billion. The company benefited from strong demand in both the retail and OEM channels.
Moreover, within the embedded business (including iNAND), the OEM channel grew pretty well as it more than doubled on a year-over-year basis, thereby constituting about 40% of OEM revenue in the fourth quarter.
Total revenue for the quarter included $1.24 billion in Product revenue (an increase of 9.0% year over year and sequentially) and $87.0 million in License & Royalty revenue (down 13.0% year over year and up 10.0% sequentially).
The year-over-year increase in Product revenue for the third quarter was positively impacted by the shift to retail, which resulted in a mix between OEM and retail. License & Royalty revenue growth was in line with the company’s expectation.
Operating Results
Product gross margin in the quarter was 43.4% on a non-GAAP basis versus 48.4% in the year-ago quarter. Product gross margin for the quarter included a charge of $18.0 million related to a power outage experienced in Fabs 3 and 4 in the fourth quarter. This charge includes the cost of scrapped wafers, the costs to bring the fabs back online and the fixed costs incurred while the fabs were down and not producing wafers.
Operating profit margin on a GAAP basis was 26.9%, compared to 30.3% in the year-ago quarter, and non-GAAP operating profit margin was 29.0% in the third quarter compared to 33.6% in the year-ago quarter. The company’s operating expenses fell 2.2% on a year-over-year basis to 16.5% of revenue, which is within the long-term financial model range of 15.0% to 17.0%.
Net income on a GAAP basis for the quarter was $485.0 million, or $2.01 per diluted share, compared to net income of $340 million, or $1.45 per diluted share in the fourth quarter of fiscal 2009.
Including the amortization of acquisition-related intangible assets, convertible debt interest expense, and related tax adjustments, non-GAAP net income for the fourth-quarter was $331.4 million, or $1.37 per diluted share, compared to net income of $314.7 million, or $1.34 per diluted share, in the fourth quarter of fiscal 2009.
Balance Sheet
SanDisk generated $359.4 million in cash from operating activities, compared to $379.1 million in the year-ago quarter. Cash and short-term investments were $2.84 billion compared to $5.10 billion in the previous quarter. Convertible long-term debt for the quarter was $1.71 billion, up from $1.68 billion reported in the previous quarter. Long-term marketable securities during the third quarter stood at $2.49 billion.
Our Take
SanDisk posted good fourth quarter 2010 numbers, exceeding the Zacks Consensus Estimate. Both the OEM and retail sides of the business progressed, enabling solid product revenue. SanDisk also provided a decent guidance for the fourth quarter. The company witnessed stronger pricing, with a corresponding positive impact on the gross margin.
This apart, SanDisk is sitting on a pile of cash, which lends operational flexibility in our view. On the other hand, the company has a high debt balance, suffers from customer concentration risk and is exposed to the current weakness in Europe.
The company has a short term Buy recommendation (Zacks rank#2)
SANDISK CORP (SNDK): Free Stock Analysis Report
Zacks Investment Research
