SanDisk Announces First Quarter Financial Results

MILPITAS, Calif.--(Business Wire)--
SanDisk(R) Corporation (NASDAQ:SNDK), the world's largest supplier
of flash storage card products, today announced results for the first
quarter ended March 30, 2008. Total first-quarter revenue increased 8%
on a year-over-year basis to $850 million and net income, in
accordance with U.S. Generally Accepted Accounting Principles (GAAP)
was $18 million, or $0.08 per diluted share, compared to a GAAP net
loss of $0.6 million, or $0.00 per diluted share, in the first quarter
of 2007.

Excluding the impact of acquisition-related charges, share-based
compensation expense and the related tax effect, first quarter
non-GAAP net income increased to $48 million, or $0.21 per diluted
share, compared to first quarter 2007 non-GAAP net income of $45
million, or $0.19 per diluted share.

"Product sales were solid on the strength of our international
business, Sansa(R) MP3 players and sales to the mobile handset and GPS
markets. Pricing was challenging throughout the quarter due to
industry-wide excess supply which adversely impacted our product gross
margin," said Eli Harari, Chairman and CEO. "We expect demand to
increase seasonally during the second quarter and price declines to
moderate; however, product margins are expected to continue to be
under pressure in Q2 with the anticipated benefit of low cost
43-nanometer and 3-bits per cell coming in the second half of the
year. We are focused on cost controls and expense reductions and we
continue to believe that the cumulative impact of price declines in
recent quarters will accelerate the creation of new markets for Flash
storage."

Key Metrics for First Quarter of 2008

-- Product revenue was $724 million, up 5% year-over-year.

-- License and royalty revenue was $126 million, up 30%
year-over-year.

-- Total megabytes sold increased 189% year-over-year and
decreased 9% from the record fourth quarter of 2007.

-- Average price per megabyte sold declined 61% on a
year-over-year basis and 29% sequentially.

-- Average retail card capacity of 2.06 gigabytes increased 71%
on a year-over-year basis and 16% sequentially.

-- GAAP product gross margin increased to 18.4% from 14.2% in the
first quarter of 2007. Non-GAAP product gross margin increased
to 20.9% from 18.5% in the first quarter of 2007.

-- GAAP operating income was $5 million compared to a loss of $20
million in the first quarter of 2007. Non-GAAP operating
income was $47 million, or 6% of revenue, compared to $47
million, or 6% of revenue, in the first quarter of 2007.

-- SanDisk announced an increase in the capacity of its embedded
iNAND product to 16 Giga-bytes for mobile handset storage.

-- SanDisk unveiled the Sansa(R) Fuze(TM), a feature rich MP3
player.

Scheduled Interview

SanDisk Corporation Chairman and Chief Executive Officer, Eli
Harari, is scheduled to appear on CNBC's "Closing Bell with Maria
Bartiromo," on April 17, 2008 at approximately 1:15 p.m. P.D.T.

Conference Call

SanDisk's first quarter 2008 conference call is scheduled for 2:00
p.m. P.D.T., Thursday, April 17, 2008. The conference call will be
webcast by CCBN and can be accessed live, and throughout the quarter,
at SanDisk's website at www.sandisk.com/IR and at www.streetevents.com
for registered streetevents.com users. To participate in the call via
telephone, the dial-in number is (913) 312-0941. The dial-in password
is 3645393. A copy of this press release will be furnished to the
Securities and Exchange Commission on a current report on Form 8-K and
will be posted to our website prior to the conference call.

A complete reconciliation between GAAP and non-GAAP information
referred to in this release is provided in the attached tables.

Forward-Looking Statements

This news release contains certain forward-looking statements,
including statements about our business prospects and outlook,
anticipated increased demand for products, anticipated price declines,
our expectation for product margins in Q2 2008, the expected cost
benefits of 43-nm and 3-bit per cell manufacturing output in the
second half of 2008 and the anticipated emergence of new markets for
Flash storage, that are based on our current expectations and involve
numerous risks and uncertainties that may cause these forward-looking
statements to be inaccurate and may significantly and adversely affect
our business, financial condition and results of operations. Risks
that may cause these forward-looking statements to be inaccurate
include among others:

-- slower than expected growth in market demand for our products
including our solid state drives, or a slower adoption rate
for our products in current and new markets that we are
targeting including the mobile phone market,

-- future average selling price erosion that may be more severe
than our expectations due to decreased demand or excess
industry capacity of flash memory from ourselves as well as
from existing suppliers or from new competitors,

-- adverse global economic and geo-political conditions,
including continued declines in the global economy,
particularly in the U.S. and Europe, or continued adverse
currency exchange rates particularly related to the Japanese
yen,

-- any interruption of or delay in supply from any of the
semiconductor manufacturing or subcontracting facilities,
including test and assembly facilities that supply products to
us,

-- slower than expected expansion of our global sales channels,

-- fluctuations in operating results, unexpected yield variances
and delays related to our conversion to 43-nanometer NAND
flash technology or the ramp-up of the 300-millimeter flash
fabrication facility,

-- unexpected yield variances in, or delays related to the
ramp-up of, 3-bits per cell manufacturing,

-- less than expected growth in the average megabyte capacity per
card,

-- fluctuations in license and royalty revenues,

-- higher than anticipated operating expenses,

-- business interruption due to earthquakes, hurricanes or other
natural disasters, particularly in areas in the Pacific Rim
and Japan where we manufacture and assemble products,

-- adverse results in litigation or regulatory actions affecting
us, and

-- other risks detailed from time-to-time under the caption "Risk
Factors" and elsewhere in our Securities and Exchange
Commission filings and reports, including, but not limited to,
our Annual Report on Form 10-K for the fiscal year ended
December 30, 2007 and our Forms 10-Q.

Future results may differ materially from those previously
reported. We do not intend to update the information contained in this
release.

About SanDisk

SanDisk Corporation, the inventor and world's largest supplier of
flash storage cards, is a global leader in flash memory - from
research, manufacturing and product design to consumer branding and
retail distribution. SanDisk's product portfolio includes flash memory
cards for mobile phones, digital cameras and camcorders, digital
audio/video players, USB flash drives for consumers and the
enterprise, embedded memory for mobile devices, and solid state drives
for computers. SanDisk (www.sandisk.com/corporate) is a Silicon
Valley-based S&P 500 company, with more than half its sales outside
the United States.

SanDisk, the SanDisk logo, and Sansa are trademarks of SanDisk
Corporation, registered in the United States and other countries.
Sansa Fuze is a trademark of SanDisk Corporation.

-0-
*T
SanDisk Corporation
Preliminary Condensed Consolidated Statements of Operations
(in thousands, except per share amounts, unaudited)

Three months ended
----------------------------
March 30, 2008 April 1, 2007
-------------- -------------
Revenues:
Product $ 724,051 $ 689,357
License and royalty 125,916 96,729
-------------- -------------
Total revenues 849,967 786,086

Cost of product revenues 576,604 570,088
Amortization of acquisition-related
intangible assets 14,582 21,062
-------------- -------------
Total cost of product revenues 591,186 591,150

-------------- -------------
Gross profit 258,781 194,936

Operating expenses:
Research and development 111,434 95,640
Sales and marketing 80,156 56,206
General and administrative 57,804 46,991
Restructuring - 6,516
Amortization of acquisition-related
intangible assets 4,475 9,100
-------------- -------------
Total operating expenses 253,869 214,453
-------------- -------------

Operating income (loss) 4,912 (19,517)

Total other income 25,882 36,259
-------------- -------------

Income before provision for income taxes 30,794 16,742

Provision for income taxes 12,914 12,157
-------------- -------------

Income after taxes 17,880 4,585

Minority interest - 5,160

-------------- -------------
Net income (loss) $ 17,880 $ (575)
============== =============

Net income (loss) per share calculation:
Net income (loss) used in computing basic
net income (loss) per share $ 17,880 $ (575)
Tax-effected interest costs related to
convertible long term debt 117 -
-------------- -------------
Net income (loss) used in computing
diluted net income (loss) per share $ 17,997 $ (575)
============== =============

Net income (loss) per share:
Basic $ 0.08 $ (0.00)
Diluted $ 0.08 $ (0.00)

Shares used in computing net income
(loss) per share:
Basic 224,518 227,455
Diluted 229,480 227,455
*T

-0-
*T
SanDisk Corporation
Reconciliation of GAAP to Non-GAAP Operating Results (1)
(in thousands, except per share data, unaudited)

Three months ended
----------------------------
March 30, 2008 April 1, 2007
-------------- -------------

SUMMARY RECONCILIATION OF NET INCOME
GAAP NET INCOME (LOSS) $ 17,880 $ (575)
Adjustments:
Share-based compensation (a) 23,226 31,219
Amortization of acquisition-related
intangible assets (b) 19,057 30,162
Inventory step-up expense related to
msystems acquisition (c) - 4,947
Income tax adjustments (d) (12,377) (20,918)
-------------- -------------
NON-GAAP NET INCOME $ 47,786 $ 44,835
============== =============

GAAP COST OF PRODUCT REVENUES $ 591,186 $ 591,150
Share-based compensation (a) (3,629) (3,214)
Amortization of acquisition-related
intangible assets (b) (14,582) (21,062)
Inventory step-up expense related to
msystems acquisition (c) - (4,947)
-------------- -------------
NON-GAAP COST OF PRODUCT REVENUES $ 572,975 $ 561,927
============== =============

GAAP GROSS PROFIT $ 258,781 $ 194,936
Share-based compensation (a) 3,629 3,214
Amortization of acquisition-related
intangible assets (b) 14,582 21,062
Inventory step-up expense related to
msystems acquisition (c) - 4,947
-------------- -------------
NON-GAAP GROSS PROFIT $ 276,992 $ 224,159
============== =============

GAAP RESEARCH AND DEVELOPMENT EXPENSES $ 111,434 $ 95,640
Share-based compensation (a) (8,826) (12,687)
-------------- -------------
NON-GAAP RESEARCH AND DEVELOPMENT
EXPENSES $ 102,608 $ 82,953
============== =============

GAAP SALES AND MARKETING EXPENSES $ 80,156 $ 56,206
Share-based compensation (a) (3,511) (6,923)
-------------- -------------
NON-GAAP SALES AND MARKETING EXPENSES $ 76,645 $ 49,283
============== =============

GAAP GENERAL AND ADMINISTRATIVE EXPENSES $ 57,804 $ 46,991
Share-based compensation (a) (7,260) (8,395)
-------------- -------------
NON-GAAP GENERAL AND ADMINISTRATIVE
EXPENSES $ 50,544 $ 38,596
============== =============

GAAP TOTAL OPERATING EXPENSES $ 253,869 $ 214,453
Share-based compensation (a) (19,597) (28,005)
Amortization of acquisition-related
intangible assets (b) (4,475) (9,100)
-------------- -------------
NON-GAAP TOTAL OPERATING EXPENSES $ 229,797 $ 177,348
============== =============

GAAP OPERATING INCOME (LOSS) $ 4,912 $ (19,517)
Cost of product revenues adjustments
(a) (b) (c) 18,211 29,223
Operating expense adjustments (a) (b) 24,072 37,105
-------------- -------------
NON-GAAP OPERATING INCOME $ 47,195 $ 46,811
============== =============

GAAP NET INCOME (LOSS) $ 17,880 $ (575)
Cost of product revenues adjustments
(a) (b) (c) 18,211 29,223
Operating expense adjustments (a) (b) 24,072 37,105
Income tax adjustments (d) (12,377) (20,918)
-------------- -------------
NON-GAAP NET INCOME $ 47,786 $ 44,835
============== =============

Net income (loss) per share calculation:
GAAP
Net income (loss) used in computing basic
GAAP net income per share $ 17,880 $ (575)
Tax-effected interest costs related to
convertible long term debt 117 -
-------------- -------------
Net income (loss) used in computing
diluted net income per share $ 17,997 $ (575)
============== =============

Net income per share calculation: Non-
GAAP
Net income used in computing basic Non-
GAAP net income per share $ 47,786 $ 44,835
Tax-effected interest costs related to
convertible long term debt 117 117
-------------- -------------
Net income used in computing diluted net
income per share $ 47,903 $ 44,952
============== =============

Diluted net income (loss) per share:
GAAP $ 0.08 $ (0.00)
Non-GAAP $ 0.21 $ 0.19

Shares used in computing diluted net income (loss) per
share:
GAAP 229,480 227,455
Non-GAAP 229,383 236,426
*T

-0-
*T
SanDisk Corporation
Reconciliation of GAAP to Non-GAAP Operating Results (1)

(1) To supplement our consolidated financial statements presented in
accordance with generally accepted accounting principles (GAAP), we
use non-GAAP measures of operating results, net income and earnings
per share, which are adjusted from results based on GAAP to exclude
certain expenses, gains and losses. These non-GAAP financial measures
are provided to enhance the user's overall understanding of our
current financial performance and our prospects for the future.
Specifically, we believe the non-GAAP results provide useful
information to both management and investors as these non-GAAP
results exclude certain expenses, gains and losses that we believe
are not indicative of our core operating results and because it is
consistent with the financial models and estimates published by many
analysts who follow the Company. For example, because the non-GAAP
results exclude the expenses we recorded for share-based compensation
in accordance with SFAS 123(R) effective January 2, 2006 and the
acquisition of Matrix Semiconductor, Inc. in January 2006 and
msystems Ltd. in November 2006, we believe the inclusion of non-GAAP
financial measures provide consistency in our financial reporting.
These non-GAAP results are some of the primary indicators management
uses for assessing our performance, allocating resources and planning
and forecasting future periods. Further, management uses non-GAAP
information as certain non-cash charges such as amortization of
purchased intangibles and share-based compensation do not reflect the
cash operating results of the business and certain one-time expenses
such as write-off of acquired in-process technology do not reflect
the ongoing results. These measures should be considered in addition
to results prepared in accordance with GAAP, but should not be
considered a substitute for or superior to GAAP results. These non-
GAAP measures may be different than the non-GAAP measures used by
other companies.

(a) Share-based compensation expense.
(b) Amortization of acquisition-related intangible assets, primarily
core and developed technology, related to the acquisition of Matrix
(January 2006) and msystems (November 2006).
(c) Inventory step-up expense related to msystems acquisition.
(d) Income taxes associated with certain non-GAAP adjustments.
*T

-0-
*T
SanDisk Corporation
Preliminary Condensed Consolidated Balance Sheets
(in thousands)

ASSETS March 30, 2008 December 30, 2007
-------------- -----------------
(unaudited)

Current Assets:
Cash and cash equivalents $ 1,225,285 $ 833,749
Short-term investments 628,416 1,001,641
Accounts receivable from product
revenues, net 180,273 462,983
Inventory 694,823 555,077
Deferred taxes 190,839 212,255
Other current assets 117,570 233,952
-------------- -----------------
Total current assets 3,037,206 3,299,657

Long-term investments 1,169,993 1,060,393
Property and equipment, net 457,666 422,895
Notes receivable and investments in
flash ventures with Toshiba 1,299,225 1,108,905
Deferred taxes 123,666 117,130
Goodwill 840,853 840,870
Intangibles, net 301,208 322,023
Other non-current assets 57,115 62,946
-------------- -----------------

Total Assets $ 7,286,932 $ 7,234,819
============== =================

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
Accounts payable $ 233,363 $ 285,711
Accounts payable to related parties 161,498 158,443
Other current accrued liabilities 277,581 286,850
Deferred income on shipments to
distributors and retailers and
deferred revenue 158,478 182,879
-------------- -----------------
Total current liabilities 830,920 913,883

Convertible long-term debt 1,225,000 1,225,000
Non-current liabilities 179,894 135,252
-------------- -----------------
Total Liabilities 2,235,814 2,274,135

Minority interest 151 1,067

Stockholders' Equity:
Common stock 3,825,827 3,797,073
Retained earnings 1,147,949 1,130,069
Accumulated other comprehensive
income 77,191 32,475
-------------- -----------------
Total Stockholders' Equity 5,050,967 4,959,617
-------------- -----------------

Total Liabilities and
Stockholders' Equity $ 7,286,932 $ 7,234,819
============== =================
*T

-0-
*T
SanDisk Corporation
Preliminary Condensed Consolidated Statement of Cash Flows
(in thousands, unaudited)

Three months ended
----------------------------
March 30, 2008 April 1, 2007
-------------- -------------
Cash flows from operating activities:
Net income (loss) $ 17,880 $ (575)
Adjustments to reconcile net income
(loss) to net cash provided by operating
activities:
Deferred and other taxes (4,369) 11,431
(Gain) loss on equity investments 3,934 (2,204)
Depreciation and amortization 62,883 65,096
Provision for doubtful accounts 5,774 913
Share-based compensation expense 23,226 31,219
Excess tax benefit from share-based
compensation (794) (6,261)
Other non-cash charges 5,392 5,693
Changes in operating assets and
liabilities:
Accounts receivable from product
revenues 251,138 467,030
Inventory (140,362) (98,109)
Other assets 135,780 63,426
Accounts payable trade (52,348) (73,234)
Accounts payable to related parties 3,055 22,547
Other liabilities (92,556) (231,723)
-------------- -------------
Total adjustments 200,753 255,824
-------------- -------------

Net cash provided by operating activities 218,633 255,249
-------------- -------------

Cash flows from investing activities:
Purchases of short and long-term
investments (354,955) (537,162)
Proceeds from sale and maturities of
short and long-term investments 624,413 549,146
Acquisition of property and
equipment, net (56,774) (43,799)
Notes receivable from FlashVision
Ltd. - 24,777
Notes receivable from Flash Partners
Ltd. (37,418) -
Purchased technology and other assets 1,125 (13,240)
-------------- -------------
Net cash provided by (used in)
investing activities 176,391 (20,278)
-------------- -------------

Cash flows from financing activities:
Repayment from debt financing (9,785) -
Proceeds from employee stock programs 6,437 38,370
Distribution to minority interest - (7,485)
Excess tax benefit from share-based
compensation 794 6,261
Share repurchase programs - (42,096)
-------------- -------------
Net cash used in financing activities (2,554) (4,950)
-------------- -------------

Effect of changes in foreign currency
exchange rates on cash (934) 388
-------------- -------------

Net increase in cash and cash equivalents 391,536 230,409

Cash and cash equivalents at beginning of
period 833,749 1,580,700

-------------- -------------
Cash and cash equivalents at end of
period $ 1,225,285 $ 1,811,109
============== =============
*T

SanDisk Corporation
Lori Barker Padon, 408-801-1384 (Investors)
Jay Iyer, 408-801-2067 (Investors)
Mike Wong, 408-801-1240 (Media)

Copyright Business Wire 2008