) reported fourth quarter 2012 adjusted earnings of 99 cents per
share, crushing the Zacks Consensus Estimate of 68 cents.
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.
Results fell short of the year-ago numbers by 19.9% but were
135.7% above the prior quarter levels.
The beat was mainly attributable to solid recovery in the
mobile embedded and retail businesses, strong geographic
contribution and favorable supply/demand metrics.
Total revenues for the fourth quarter were $1.54 billion, down
2.2% on a year-over-year basis but up 21.1% from the previous
quarter. The quarter's result came slightly above the Zacks
Consensus Estimate of $1.52 billion and within the company's
guidance. The sequential revenue improvement was mainly due to
strong performances in both the OEM and Retail verticals.
Within original equipment manufacturer (OEM), mobile embedded
business, demand for iNAND products and sales of solid state
drives (SSDs) grew decently. Retail products witnessed solid
growth due to seasonality and market share gains in most of the
Segment wise, Product revenue decreased 1.9% year over year to
$1.44 billion, while License and Royalty revenue came in at $96.8
million, down 6.5% year over year. Both the segments performed
well in comparison to the previous quarter.
Reported gross margin in the quarter was 39.1%, down from
42.0% 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 21.8% versus 26.4% in the year-ago
quarter. The company's total operating expenses increased 8.5% on
a year-over-year basis. Higher operating expenses were mainly due
to 17.4% and 8.0% year-over-year increases in selling and general
expenses and research and development expenses, respectively. But
this was slightly offset by lower general and administrative
Net income on a GAAP basis was $213.5 million or 87 cents per
share compared with $281.2 million or $1.14 in the year-ago
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 fourth quarter was $242.1 million or
99 cents per share compared with $305.1 million or $1.24 in the
Balance Sheet & Cash Flow
SanDisk generated $315.6 million in cash from operating
activities, compared with $127.9 million in the prior quarter.
Capital expenditure was $3.8 million. Cash and short-term
investments were $2.88 billion versus $2.60 billion in the
previous quarter. Long-term marketable securities were $2.84
billion. Convertible debt for the quarter was $1.70 billion, up
from $1.67 billion in the previous quarter.
Management is positive about SSD revenue growth and better
supply/demand metrics in 2013. 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
The company also expects its total SSD contribution to be
roughly 25.0% of total revenue moving into 2014.
SanDisk now expects first quarter revenue to be within
$1.23-$1.30 billion, reflecting modest sequential decline due to
seasonality. The company also expects a strong fourth quarter
2013 and projects fiscal 2013 revenue in the range of $5.30-$5.60
The company expects non-GAAP gross margin of 38.0% (+/-2.0%).
Non-GAAP operating expenses will be roughly $255.0 million for
the first 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 28.0% on a non-GAAP
For fiscal 2013, non-GAAP gross margin is expected to be 41.0%
(+/- 2.0%). Non-GAAP operating expenses will be roughly $1.05
billion. Non-GAAP operating margin is expected to be within
20.0%-24.0% range. Non-GAAP other income is expected to be
approximately $25.0 million and the tax rate is projected at
approximately 30.5% on a non-GAAP basis.
The Zacks Consensus Estimate for first quarter and fiscal 2013
are pegged at 59 cents and $3.17 per share, respectively.
SanDisk posted solid fourth 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. Fiscal 2013 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 Rank #2 Rank (Buy).
Investors should look out for some other stocks that are
slated to report this earnings season with positive Zacks Rank
and Expected Surprise Prediction or ESP (Read:
Zacks Earnings ESP: A Better Method
) has a Zacks Rank #1 (Strong Buy) with an ESP of +14.8%.
) has a Zacks Rank #2 (Buy) with an ESP of +350.0%.
INTERDIGITL INC (IDCC): Free Stock Analysis
MICRON TECH (MU): Free Stock Analysis Report
SANDISK CORP (SNDK): Free Stock Analysis
YAHOO! INC (YHOO): Free Stock Analysis Report
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