) reported third quarter 2012 adjusted earnings of 42 cents per
share crushing the Zacks Consensus Estimate of 29 cents. The
adjusted or non-GAAP earnings per share exclude amortization of
acquisition-related intangible assets, convertible debt interest
and tax gains, but include stock-based compensation expense.
However, the results came 63.3% short of the year-ago period but
179.3% above the prior quarter level.
MICRON TECH (MU): Free Stock Analysis Report
SANDISK CORP (SNDK): Free Stock Analysis
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The beat was mainly attributable to solid recovery in the mobile
embedded and retail businesses, strong geographic contribution
and favorable supply/demand metrics. The company's shares surged
3.59% in after-market trade reflecting positive expectations for
the fourth quarter 2012 and fiscal 2013.
Total revenue for the third quarter was $1.27 billion, down 10.1%
on a year-over-year basis but up 23.3% from the previous quarter.
The quarter's result came slightly above the Zacks Consensus
Estimate of $1.22 billion. The sequential revenue improvement
came on the back of strong performances in both the OEM and
Within OEM, mobile embedded business and sales of SSDs grew the
most. In Retail, market share gains were noticed across the
geographical regions. Retail products witnessed solid
back-to-school demand and penetration in emerging regions.
SanDisk stated that the improvement in Retail was mostly due to
continued investments, which helped in achieving competitive
advantage over the peers.
Segment wise, Product revenue decreased 10.6% year over year to
$1.18 billion, while License and Royalty revenue came in at $91.0
million, down 3.3% year over year. Both the segments performed
well in comparison to the previous quarter.
Reported gross margin in the quarter was 30.1%, down from 43.2%
in the year-ago quarter. The year-over-year margin decline was
due to higher cost as well as high-level of price declines. But
the sequential improvement was due to moderated price declines
coupled with cost optimization.
Operating margin was 10.4% versus 27.3% in the year-ago quarter.
The company's total operating expenses increased 10.9% on a
year-over-year basis. Higher operating expenses were mainly due
to 11.1% and 19.4% year-over-year increases in research and
development and selling and general expenses, respectively. But
this was slightly offset by lower general and administrative
Net income on a GAAP basis was $76.5 million or 31 cents per
diluted share compared with $233.3 million or 96 cents in the
Excluding the amortization of acquisition-related intangible
assets, convertible debt interest expense and related tax
adjustments, but including stock-based compensation expense,
non-GAAP net income for the third quarter was $102.7 million or
42 cents per diluted share compared with $279.6 million or $1.15
in the year-ago quarter.
Balance Sheet & Cash Flow
SanDisk generated $127.9 million in cash from operating
activities, compared with $19.1 million in the prior quarter.
Capital expenditure was $142.4 million. Cash and short-term
investments were $2.60 billion versus $2.54 billion in the
previous quarter. Long-term marketable securities were $2.82
billion. Convertible debt for the quarter was $1.67 billion, up
from $1.65 billion in the previous quarter.
Management has provided an upbeat outlook for the fourth quarter
of fiscal 2012. It believes that price declines could moderate
further, resulting from improving supply/demand situation in the
industry. Management also expects higher demand for its mobile
and SSD solutions, which will likely boost its revenue growth
during the fourth quarter.
The company is planning to focus more on the iNAND technology, as
this is going to be a driver for its mobile-embedded products. It
expects the launch of several new smartphones and tablets,
Ultrabooks and other end-client PCs, running on SSDs. This will
boost demand for NAND Flash gadgets aka SSD.
For SSDs, SanDisk is confident about strong demand from the
Enterprise sector. It is also planning to introduce
next-generation controllers soon to capitalize on the growing
enterprise storage demand. It is also expecting a surge in client
SSD demand. Taking all these factors into consideration, the
company expects its total SSD contribution to be 10.0% of total
revenue in 2012.
Anticipating the changing market scenario, SanDisk now expects
fourth quarter revenue in the range of $1.50 billion, plus or
minus $50 million, reflecting 18.1% sequential improvement.
Now that it has transitioned to 19-nanometer chip production
facility, SanDisk expects majority of the cost improvements from
this. Also, expected positive turn in the pricing environment
will allow further improvement in gross margin. The company
expects non-GAAP gross margin of 33% (+/- 2.0%). Non-GAAP
operating expenses will be roughly $250.0 million for the fourth
quarter, which reflects continued investments. Non-GAAP other
income is expected to be approximately $5.0 million and the tax
rate is projected at approximately 32.0% on a non-GAAP basis.
The Zacks Consensus Estimate for fourth quarter and 2012 are
pegged at 54 cents and $1.60 per share, respectively.
SanDisk posted stellar third quarter results with both the bottom
and top lines surpassing the Zacks Consensus Estimates. Though
the results came below the year-ago levels, the sequential comps
were better than expected. Revenues from OEMs and Retail started
recovering. Fourth quarter guidance was encouraging too.
Though lackluster PC sales, European issues, competition from
Micron Technology Inc.
) and currency fluctuations could hurt the fundamentals a bit, we
remain overtly positive on management's commentary of a
turnaround story in the coming quarter and beyond and strong
secular demand for NAND flash.
Currently, SanDisk holds a Zacks #1 Rank, implying a short-term
"Strong Buy" rating.