SUNNYVALE, CA, January 23, 2002 - SanDisk Corporation (NASDAQ:SNDK), the world's largest supplier of flash memory data storage products, today announced results for its fourth quarter ended December 31, 2001. Total fourth quarter revenues were $91.9 million, an increase of 40% from $65.9 million in the third quarter of 2001. Product revenues were $83.3 million, up 45% from the prior quarter due to record sales through the retail channel and increases in units and megabytes shipped. Fourth quarter revenues from licenses and royalties were $8.6 million, unchanged from the prior quarter. The current quarter loss before taxes was $15.8 million and includes start-up costs and a strategic equity investment write-down. This compares to a loss before taxes of $174.8 million in the third quarter that included equity investment and inventory write-downs, equipment write-off charges, start-up costs and restructuring charges. Net income in the fourth quarter of 2001 was $25.6 million, or $0.36 per share on a diluted basis and included a $41.5 million tax benefit provision, or $0.59 per diluted share, of which $29.7 million was generated by an unrealized fourth quarter appreciation in the value of the Company's equity investment in UMC. This compares to a net loss in the third quarter of $170.5 million, or $2.50 per diluted share.
Total fourth quarter revenues decreased 48% from $177.7 million in the fourth quarter of 2000. Product revenues declined 46% from $154.7 million in the same period of the prior year due to a 68% decline in revenue per megabyte and lower shipment volumes. Revenues from licenses and royalties decreased 63% from $22.9 million in the fourth quarter of 2000 and reflect lower royalty bearing sales by licensees. Current quarter loss before taxes of $15.8 million compares to income before taxes of $46.1 million in the fourth quarter of 2000. The fourth quarter 2001 net income of $25.6 million compares to earnings of $29.5 million, or $0.41 per diluted share, for the fourth quarter of 2000.
Revenues for fiscal 2001 were $366.3 million, down compared to $601.8 million for fiscal 2000 due primarily to lower product revenues. Net loss in 2001 was $297.9 million, or $4.37 per share which included pre-tax charges related to equity investments totaling $302.3 million compared to net income of $298.7 million, or $4.11 per diluted share in 2000 which included a pre-tax gain related to an equity investment totaling $344.2 million.
Product gross margin for the fourth quarter of 2001 was a positive 7% compared to a negative 56% in the prior quarter. Pro-forma product gross margins adjusted for FlashVision start-up costs and inventory valuation were negative 4% in the fourth quarter of 2001 compared to negative 13% in the prior quarter. Fourth quarter product gross margins improved compared to the prior quarter due to a lower decline in average selling prices, higher unit volumes, higher average card capacities and lower product costs resulting in part from prior quarter inventory valuations. In the fourth quarter of 2001, total units shipped increased 10% and megabytes shipped increased 52% compared to the previous quarter. Revenue per megabyte declined by 24% compared to a 34% decline in the third quarter of 2001.
"We are very pleased with our improved performance and our record sales in the retail channel in the fourth quarter," said Dr. Eli Harari, President and CEO of SanDisk. "Sell-through in the retail channel was very good, and price declines have moderated in the past two months. Our total megabytes shipped in the quarter achieved an all time record high, a 52% increase over the third quarter, primarily driven by the lower price points for our high capacity cards. New orders increased significantly in the fourth quarter relative to the prior three quarters. New orders from OEM customers as well as industrial distributors have recently started to pick up from depressed levels experienced in 2001. We believe that inventories at telecommunication OEM's, industrial customers and industrial distributors are becoming depleted, and that these customers are beginning to re-enter the market for our products. In the last six weeks of the quarter, we began selling SanDisk Memory Stick cards as well as the new SanDisk Ultra CompactFlash cards.
"On the operational side, our subcontractor manufacturing operations in China and Taiwan, and our logistic retail distribution centers in Holland and Raleigh, North Carolina executed very well and were able to meet the surge in orders that started around Thanksgiving. Our restructuring to consolidate all assembly and test operations in China and Taiwan was completed during the fourth quarter and is expected to reduce our manufacturing costs and overhead expenses in 2002. We announced with Toshiba our plan to consolidate future NAND wafer production at Toshiba's advanced memory fab in Yokkaichi, Japan. We believe this consolidation will result in the accelerated introduction of future NAND flash memory technologies and will result in substantially lower cost of flash memory wafers in 2002, compared to the Dominion fab in Virginia. Strict expense controls resulted in total operating expenses being essentially flat from the prior quarter. We also completed a convertible subordinated debt financing transaction of $150 million which translates into approximately 8,139,000 additional shares of common stock should these notes be converted.
"Despite the very difficult market conditions throughout 2001, we were able to increase our retail revenues by 18% relative to 2000. We are encouraged by what may hopefully be the first signs that the market may have bottomed out. Inventory liquidation at our industrial/ telecommunication customers is, we believe close to completion. Our year-long company wide transformation from .24 micron NOR flash to the more cost effective .16 micron NAND flash is completed and is expected to lead to improved product margins in 2002. Although bookings visibility remains poor, we expect product revenues in the first quarter to be approximately the same as in the fourth quarter provided the positive trend started in the fourth quarter continues. We are cautiously optimistic about increased sales and improving product gross margins in subsequent quarters in 2002 as we begin to realize the benefits of new products, lower costs associated with our more advanced flash technology, as well as the cost savings from our restructuring activities in 2001."
This news release contains certain forward looking statements including our expectations for future product revenues and bookings, product demand, average selling prices, gross margins, earnings and timing of market recovery that are based on current expectations and involve numerous risks and uncertainties that may significantly and adversely affect our business, financial condition and results of operations. In addition to the factors discussed above, other risks include: future average selling price erosion due to excess industry capacity and extreme price competition; increased expenses and fluctuations in operating results and yields related to the winding down of flash memory wafer production at our FlashVision foundry joint venture in Virginia and the startup of flash memory wafer production at Yokkaichi fab in Japan; potential delays in starting up production of NAND flash memory wafers at Yokkaichi which may reduce our available supply of flash memory and cause us to not be able to meet customer demand for our flash products; our increased exposure to interruption of supply due to our increased dependence on a geographic sole source at Yokkaichi for our supply of NAND flash memory; the current global economic conditions in general and in our markets in particular; the timely development, internal qualification and customer acceptance of new products based on the 512megabit .16 micron NAND flash chips that SanDisk is obligated to purchase from FlashVision; fluctuations in royalty revenues due to industry wide declines in demand for flash memory products which reduce royalty bearing sales of our licensees; the timely introduction and acceptance of new consumer products that incorporate our flash storage devices; slower than expected growth in the emerging markets for our products which may result in reduced sales and increased inventory; successful management of assembly operations in China and Taiwan; the unknown economic impact of the recent terrorist attacks and the military response thereto; seasonality of product sales; success in developing brand name preference and an efficient distribution system for SanDisk's products in the retail channel; economic conditions and exchange rates in Japan, the Pacific Rim, Europe and other geographic regions as they affect SanDisk's customers; the successful launch of our Secure Digital and Memory Stick and Ultra CompactFlash card products; and the other risks detailed from time to time in our Securities and Exchange Commission filings and reports, including, but not limited to, the Form 10Q for the quarter ended September 30, 2001 and the Annual Report on Form 10-K for the year ended December 31, 2000. Future results may differ materially from those previously reported. We assume no obligation to update the information contained in this release.
SanDisk Corporation, the world's largest supplier of flash data storage products, designs, manufactures and markets industry-standard, solid-state data, digital imaging and audio storage products using its patented, high density flash memory and controller technology. SanDisk is based in Sunnyvale, CA
SanDisk's fourth quarter 2001 conference call is scheduled for 1:30 p.m. PDT, Wednesday, January 23rd. The phone number is (973) 872-3462. A webcast of the conference call will be available on www.sandisk.com/IR and on www.streetevents.com. Both webcasts will be available until Monday, January 28, 2002, at 8:00 a.m. Pacific Time.
CompactFlash and CF are trademarks of SanDisk Corporation.