I just came across the Merrill comments. They all sound good except the DSO stuff, which I've said don't make sense.
3Q00 Highlights
SanDisk reported 3Q00 EPS of $0.35, easily beating our
$0.28 estimate by $0.07, which was a penny below
Consensus. Revenues of $170.8 million were up 19%
QoQ, above our $166.0 million estimate.
Gross margins were 40.4%, down 90 basis points QoQ, but
well above our 39.1% estimate, due to higher product
gross margins and a $1 million dollar upside to our license
and royalties estimates. We believe product gross margins
will continue to move higher as the product mix shifts to
higher-margin, higher-density flash chips and as further
manufacturing efficiencies are recognized. We look for
gross margins to trend to 37.4% by the end of F01 as the
product mix shifts to an increasing percentage of revenues
from flash products and as the license and royalties
revenues remain flat going forward.
Geographic breakout
Geographic breakout was as follows: North America,
44%, up 15% QoQ; Japan, 17% (down 16%); Europe, 21%
(up 48%); and Asia/Pac, 18% (up 127%). Europe was up
sharply due to strong increases in demand from wireless
OEMs for MultiMedia cards used in cell phones. Demand
in Asia was particularly strong for multimedia cards
(MMCs) used to store music in digital audio players.
Cell phones could add $5 billion to TAM
SanDisk signed agreements with Nokia, Ericsson and
Siemens during the quarter to supply them with
MultiMedia Cards for the company’s upcoming smart
phones. We believe cell phones will be the next major end
market for data-storage flash as our channel checks
indicate several other cell phone vendors are currently
planning on rolling out models in the coming months
featuring SanDisk’s MultiMedia card as a storage device
for music. We believe the cell phone market could add as
much as $5 billion to the TAM of SanDisk. Our checks in
the channel indicate Siemens already represents over 5%
of SanDisks revenues only one quarter after shipments
have begun.
Product revenue breakout
Estimated product revenue breakout was as follows:
CompactFlash, 46% of product revenues, up 27% QoQ;
FlashDisk, 14%, down 7% QoQ; MMC, 25%, up a strong
31% QoQ; SmartMedia, 6%, up 30%; and flash chipset,
7%, up 51% QoQ. The sharp increase in MMC sales was
due to strong demand from the digital cell phone and
digital camcorder markets. The strength in CompactFlash
was driven by strong demand from the company’s digital
camera manufacturers.
Sales directly to customers were approximately 65% of
sales, up 50% QoQ, retail sales, 25%, up 10% QoQ, and
industrial distributors, 10%, down 32% QoQ. In a
capacity-constrained environment such as data-storage
flash, component makers will sometimes favor their top
customers in allocation. The sharp increase in OEM sales
is a result of strong demand across-the-board for
SanDisk’s products in addition to the company slightly
favoring its top OEM customers. The sequential decrease
in sales to distributors was the result of the company being
unable to qualify parts in time for shipment and a decrease
in allocation.
Capacity comes on line after die shrink
During the quarter SanDisk successfully shrunk the
linewidths on its 256 Mb products from 0.28 micron to
0.24 micron, which provided badly-needed capacity for the
company and improved yields. In addition, SanDisk also
began receiving wafer shipments from an additional fab at
UMC, bringing the total amount of fabs at UMC producing
wafers for SanDisk to three. We believe the combination
of the additional fab and die shrinking should provide the
company with a 50% increase in capacity over current
levels.
SanDisk continues to benefit from a faster-than-expected
transition to 256Mb from 128 Mb products. We believe
revenues were split 95/5 between 256Mb and 128Mb
products during the quarter, and we believe the company is
shipping 256 Mb products exclusively, a fact that should
act to push gross margins higher.
Balance Sheet Summary
Cash decreased just over $266 million QoQ from $697.8
million to $431.2 million as a result of the company’s
partial payment to Tower Semiconductor for supply of
controller chips, increase in accounts receivable and
payment to Toshiba for joint development of the new 512
Megabit flash card. DSO increased over 18 days from
52.9 to 71.1 days QoQ as the company received late
shipments of wafers from UMC and consequently fell
behind in billing the finished product. Inventory days
increased 10 days QoQ from 50.3 to 60.1 days due to the
company’s efforts to stock new retail outlets with adequate
CompactFlash and MMC products.
Changes to Model
SanDisk reported a tax rate during 3Q00 of 37.5% due to
increased profitability increasing the company’s tax rate,
which was above our 35% estimate. Going forward we
expect the tax rate to equal 36.5%, up from our original
estimate of 35%. We also are raising our R&D
assumptions to 12.0% of total revenues in 2001 from
10.5% due to planned spending on the company’s joint
venture fabrication facility with Toshiba, named
Dominion. |
