) reported second-quarter 2014 adjusted earnings of $1.31 per
share, which came ahead of the Zacks Consensus Estimate by a penny.
Moreover, earnings per share increased 13.4% from the year-ago
quarter. Adjusted earnings per share (on a proportionate tax basis)
exclude amortization of acquisition-related intangible assets,
convertible debt interest but include stock-based compensation
Nonetheless, shares of SanDisk slumped 9.8% in after-hours trading
primarily due to a tepid third quarter revenue guidance.
Total revenue increased 10.7% on a year-over-year basis to $1.634
billion, which not only came ahead of management's guided range of
$1.550 billion-$1.625 billion but also beat the Zacks Consensus
Estimate of $1.597 billion. The year-over-year revenue growth was
primarily attributed to strong demand in both client and enterprise
SSDs. Notably, sales from the SSD jumped 97.0% on a year-over-basis
and comprised 29.0% of total revenue.
Also, revenues from removable products increased 7.0% on a
year-over-basis and comprised 40.0% of total revenue. The increase
was primarily driven by growth in microSD cards (part of removable
Furthermore, SanDisk revenues from Commercial channels (67.0% of
second-quarter revenues) grew 14.0% year over year. However, mobile
embedded revenues (part of commercial revenues) were down 29.0% on
a year-over-year basis, primarily due to a shift by a customer to
client SSD solutions.
Additionally, SanDisk's revenues from retail channels (33.0% of
second-quarter revenues) increased 4.0% year over year attributable
to favorable mix of high performance Ultra and Extreme products
(SSDs and mobile cards).
During the quarter, SanDisk inked a deal to acquire
), a provider of flash-based PCIe hardware and software solutions
for $1.1 billion in cash. Leveraging Fusion-io's hardware and
software solutions, SanDisk will be able to enhance its existing
flash memory storage portfolio.
It is also noteworthy that SanDisk unveiled several new and
innovative SSD products to cater to pent-up demand, during the
quarter. In a separate development, SanDisk also introduced
15-nanometer 1Z technology, an enhanced version of NAND Extreme
embedded flash drive (EFD).
SanDisk's adjusted gross profit (including stock-based compensation
but excluding other one-time items) for the quarter came in at
$779.4 million, up 13.5% form the year-ago quarter. Adjusted gross
margin also increased 119 basis points (bps) on a year-over-year
basis to 47.7% primarily due to higher revenue base.
SanDisk's adjusted operating expenses increased 20.9% year over
year to $341.5 million. As a percentage of revenues, operating
expenses were up 176 basis points (bps) from the year-ago quarter.
The increase was primarily due to higher research and development
expenses, sales and marketing expenses and general and
The company reported operating profit (including stock-based
compensation but excluding other one-time items) of $437.8 million,
up 8.3% from the year-ago quarter. However, operating margin
declined 58 bps from the year-ago period, primarily due to higher
operating expenses as a percentage of revenues.
Sandisk Corporation - Quarterly EPS (BNRI) |
Excluding the amortization of acquisition-related intangible
assets, convertible debt interest expense and related tax
adjustments but including stock-based compensation expense, net
income for the second quarter came in at $304.1 million or $1.31
per share compared with $281.7 million or $1.15 per share in the
Balance Sheet & Cash Flow
Cash and short-term investments were $2.68 billion versus $2.81
billion in the previous quarter. Long-term marketable securities
were $3.57 billion. SanDisk had $1.18 billion of convertible
long-term debt in its balance sheet.
SanDisk generated $240.9 million in cash from operating activities
compared with $357.6 million in the prior quarter. During the
quarter, SanDisk repurchased 2.7 million shares and paid dividends
amounting to $51.0 million.
SanDisk also declared a cash dividend of 30 cents per share for the
third quarter of fiscal 2014, payable on Aug 25.
Management is positive about embedded solutions and enterprise SSD
revenue growth, favorable product mix and better supply/demand
metrics in 2014. Given, the strong demand from OEM customers and
enterprise demand for 19-nanometer technology node, SanDisk expects
bit supply to be at a lower end of 25.0% to 35.0%. Also, the
company expects to increase its wafer capacity by approximately
SanDisk expects revenues for the third quarter to be between $1.675
billion-$1.725 billion, lower than the Zacks Consensus Estimate of
The company expects its third quarter non-GAAP gross margin to be
in the range 47.0%-49.0%. SanDisk expects operating expenses in the
range of $320.0 million to $330.0 million. The company expects
non-GAAP tax rate to be 31.5% in the third quarter.
SanDisk posted better-than-expected second-quarter results.
Revenues from commercial and retail channels were strong, aided by
client and enterprise class SSD sales. Moreover, the strategic
acquisition of Fusion-io Inc and SMART Storage Systems is expected
to expand SanDisk's offerings in the Enterprise SSD segment.
However, the company provided a tepid third quarter revenue
guidance. Also, declining price per gigabyte, primarily due to
unfavorable product mix, could impact the company's results.
Going forward, lackluster PC sales, competition from
Micron Technology Inc.
) and currency fluctuations remain headwinds. However, we remain
positive on management's commentary of a turnaround in the coming
quarters and strong secular demand for its storage products.
It is also worth mentioning that
) remains a major customer of SanDisk. Hence, we believe that with
price and cost benefits as well as a long-term NAND supply
agreements with the likes of Apple will help SanDisk to outperform
the NAND market.
Currently, SanDisk has a Zacks Rank #1 (Strong Buy).
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