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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) August 13, 1999
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SANDISK CORPORATION
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(Exact name of registrant as specified in charter)
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Delaware 0-26734 77-0191793
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
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140 Caspian Court, Sunnyvale, California 94089
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (408) 542-0500
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None
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(Former name or former address, if changed since last report.)
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Item 5. Other Events.
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Third Quarter Results
Total revenues for the quarter ended September 30, 1999 were $67.5 million,
an increase of 29% from $52.5 million for the quarter ended June 30, 1999.
Product revenue for the third quarter of 1999 was $57.6 million, an increase of
36% from $42.3 million in the previous quarter, which was due primarily to
increased sales of our CompactFlash and MultiMediaCard products.
Total unit shipments increased 24% during the third quarter compared to the
previous quarter. CompactFlash revenues represented 63% of our third quarter
product revenues, up from 56% in the prior quarter, while FlashDisk products
accounted for 20% of product revenues, down from 28% in the prior quarter.
MultiMediaCard unit sales grew 66% and represented 9% of our product revenues
compared to 6% in the previous quarter. Overall average selling prices per unit
were flat for the second consecutive quarter as price declines were offset by a
shift in product mix to higher capacity cards. The average selling price per
megabyte of capacity shipped declined by 19% quarter to quarter, while the
average capacity per unit shipped increased 23%.
Approximately 74% of SanDisk's sales in the third quarter of 1999 came from
the consumer market, with the remainder coming from industrial and
telecommunications customers. Our top 10 customers represented 55% of product
revenue in the third quarter.
License and royalty revenue for the third quarter was $9.9 million, down
slightly from the previous quarter. License and royalty revenue represented 15%
of total revenue in the third quarter of 1999 compared to 20% in the previous
quarter.
In the quarter ended September 30, 1999, total gross margin was 35% compared
to 41% in the previous quarter. Product gross margin decreased to 24% of
product revenues from 27% in the previous quarter. The decrease in product
gross margin was primarily due to lower than anticipated yields on our 128
megabit and MultiMediaCard stacked die products, increased manufacturing costs
due to spot shortages of critical components experienced during the quarter and
a decline of 19% in the average selling price per megabyte.
Operating expenses for the quarter ended September 30, 1999, were $16.7
million, an increase of 14% from $14.7 million in the prior quarter. The
increase was primarily due to higher research and development expenses for
advanced technologies, increased salaries and payroll related expenses, and
increased commissions and marketing expenses. Third quarter operating expenses
represented 25% of total revenues compared to 28% in the prior quarter. We
expect expenses to increase in absolute dollars in the fourth quarter as we
continue to accelerate our investments in research and development to support
the 256 megabit and MultiMediaCard production ramp up and in sales and
marketing for the expansion of the retail channel in our U.S., Japanese and
European markets.
Interest and other income was $2.8 million compared to $1.5 million in the
previous quarter due primarily to foreign exchange gains experienced during the
quarter on our Japanese yen based assets.
Net income in the quarter was $6.5 million, an increase of 14% from $5.7
million in the previous quarter. Basic earnings per share was $0.24 and diluted
earnings per share was $0.21 for the quarter, compared to basic earnings per
share of $0.21 and diluted earnings per share of $0.19 in the second quarter of
1999.
On October 13, 1999, we issued a press release announcing our third quarter
results. A copy of this press release is attached hereto as Exhibit 99.1 and
incorporated herein by reference.
Matsushita and Toshiba Collaboration
On August 25, 1999, SanDisk announced a collaboration with Matsushita and
Toshiba under which we will jointly develop and promote a next generation flash
memory card called the Secure Digital Memory Card. The Secure Digital Memory
Card is an enhanced version of our MultiMediaCard that will incorporate
advanced security and copyright protection features required by the emerging
markets for the electronic distribution of music, video and other copyrighted
works.
Under the terms of this cooperation, we, along with Matsushita and Toshiba,
will establish a licensing entity that will license the Secure Digital Memory
Card to both memory card manufacturers and manufacturers of consumer
electronics devices, including MP3 portable music players. In addition,
Matsushita and Toshiba will sell their own Secure Digital Memory Card products.
A memorandum of understanding has been signed by the three companies with
respect to this collaboration and negotiations for a definitive agreement are
underway, but we cannot assure you that these negotiations will be successful
or that we, Matsushita and Toshiba will enter into a definitive agreement.
The Secure Digital Memory Card will incorporate a number of new features,
including Secure Digital Music Initiative, or SDMI, compliant security and copy
protection, a mechanical write protect switch and a high data transfer rate.
The Secure Digital Memory Card is slightly thicker and uses a different
interface than our MultiMediaCard. Because of these differences, the Secure
Digital Memory Card will not work in current products that include a
MultiMediaCard slot. However, our MultiMediaCard products are forward
compatible and will work in Secure Digital Memory Card slots. We expect to
begin shipping our Secure Digital Memory Card products in 32 and 64 megabyte
capacities in the second quarter of 2000. We cannot assure you that the Secure
Digital Memory Card will gain widespread adoption by consumers, be supported by
content providers or that it will be able to compete successfully against
alternative card formats, such as Sony's Memory Stick.
Toshiba Memorandum of Understanding
In October 1999, we entered into a nonbinding memorandum of understanding
with Toshiba providing for the joint development and manufacturing of 512
megabit and 1 gigabit flash memory chips and Secure Digital Memory Card
controllers. As part of this collaboration, we and Toshiba plan to employ
Toshiba's future 0.16 micron and 0.13 micron NAND flash integrated circuit
manufacturing technology and our multilevel cell flash and controller system
technology. Further, we and Toshiba intend to form and fund a joint venture to
equip and operate a silicon wafer manufacturing line in Virginia. In addition,
the joint venture may purchase wafers from a fabrication facility in Japan to
meet the parties' wafer requirements. The cost of equipping the Virginia wafer
manufacturing line is estimated at between $700 million and $800 million. We, as
part of our 50% ownership of the joint venture, expect to invest up to $150
million in cash, and, if necessary, guarantee equipment lease lines for an
additional $250 million. We and Toshiba will each separately market and sell any
products developed and manufactured under this relationship. We do not expect
any material revenues from the 512 megabit technology for at least one year and
from the 1 gigabit technology for at least two years. A definitive agreement
based upon this memorandum of understanding is being negotiated and is expected
to be concluded by January 2000, subject to final approval by our board of
directors and that of Toshiba. We cannot assure you that we will successfully
negotiate and enter into a definitive agreement relating to this joint venture.
Moreover, once entered into, there are a number of risks applicable to this
venture which could affect its success including risks relating to funding,
output capacity, timely development of the 512 megabit and 1 gigabit flash
memory chips and higher than usual expenses during the equipping, startup and
production phases.
Effects of Taiwan Earthquake
In September 1999, both USIC and USC, the foundries that currently produce
all of our flash memory wafers, were damaged and temporarily shut down by an
earthquake in Taiwan. As a result, 8 to 10% of the silicon wafers in production
at the time of the earthquake had to be discarded and no new wafers could be
manufactured for 11 days, resulting in the loss or destruction of a portion of
our fourth quarter wafer supply. We expect that our existing silicon wafer
inventory, combined with our planned output from USIC and USC, will allow us to
ship more megabytes in the fourth quarter of 1999 than in the third quarter of
1999. However, due to this disruption in wafer supply, we expect fourth quarter
financial results to be affected by spot shortages and increased expediting
costs and that our quarter-over-quarter revenue growth rate in the fourth
quarter will be lower than in the third quarter. This expectation
is based, however, on the assumption that resumed production will continue at
historical rates. Additional earthquakes, aftershocks or other natural
disasters in Taiwan could preclude us from obtaining an adequate supply of
wafers to fill customer orders, and could significantly harm our business,
financial condition and results of operations.
Developments regarding Seagate Technology, Inc.
As of August 6, 1999, Seagate Technology, Inc., our largest stockholder,
beneficially owned 6,141,374 shares, or 22.5%, of our common stock. In October
1999, Seagate determined that it would not proceed with its proposed sale of
250,000 shares of our common stock in our proposed public offering of 3,000,000
shares of common stock or its proposed sale of $200,000,000 of our common stock
through the SanDisk PEPS Trust to holders of Premium Exchangeable Participating
Shares, or PEPS, of the trust. Seagate has agreed not to sell or otherwise
transfer 5,141,374 of its shares for a period of 90 days after the date of the
final prospectus relating to the proposed offering. Other than our directors,
executive officers and Seagate, no other stockholder is bound by a lock-up
agreement with the underwriters. If Seagate were to sell all or part of the
remaining 1,000,000 shares during this 90 day lock-up period, or the remainder
of its shares after this period, or other stockholders were to sell their
shares, the price of our common stock could fall significantly. In addition,
sales of a significant amount of our common stock in the open market by Seagate
or other significant stockholders could make it more difficult for us to sell
equity or equity-related securities in the future at a time and price that we
deem appropriate. If this were to occur, and we were unable to raise capital
through other means, our business, financial condition and results of operations
could be materially harmed.
On August 13, 1999, Thomas F. Mulvaney resigned from the board of directors
of SanDisk Corporation.
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Item 7. Exhibits.
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99.1 Press Release, dated October 13, 1999.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
SANDISK CORPORATION
DATE: October 21, 1999 By: /s/ Cindy Burgdorf
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Name: Cindy Burgdorf
Title: Chief Financial Officer
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EXHIBIT INDEX
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Exhibit Document Description
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99.1 Press Release, dated October 13, 1999.
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Exhibit 99.1
[SANDISK LETTERHEAD]
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PRESS RELEASE
CONTACT: CINDY BURGDORF, CFO
(408) 542-0577
SANDISK ANNOUNCES RECORD REVENUE AND BOOKINGS
FOR THIRD QUARTER 1999
SUNNYVALE, CA, October 13, 1999 . . . SanDisk Corporation (NASDAQ:SNDK),
the world's largest supplier of flash memory data storage products, today
announced record revenue for its quarter ended September 30, 1999. Total third
quarter revenues were $67.5 million, an increase of 29% from the second quarter
of 1999 due primarily to increased sales of CompactFlash and MultiMediaCard
products. Revenues from licenses and royalties were $9.9 million. Net income
for the quarter was $6.5 million, up 11% from $5.7 million in the second quarter
of 1999. Diluted earnings per share was $0.21, compared to $0.19 per share for
the second quarter of 1999.
Total third quarter revenues increased $35.5 million, or 111%, over total
revenues of $32.1 million for the same period last year. Product revenues
increased by 139% compared to the same period of the prior year and license and
royalty revenues increased by 25%. Current quarter diluted earnings per share
was $0.21, compared to $0.09 per share for the third quarter of 1998.
"The third quarter was a very strong quarter for SanDisk" said Dr. Eli
Harari, President and CEO of SanDisk. "New records were achieved in product
revenues, number of units and megabytes shipped and new bookings. We shipped
24% more units and 52% more megabytes than in the previous record quarter.
Bookings have been exceptionally strong in all geographic areas, amounting to
2.5 times the record bookings we recorded in the previous quarter. We are
booked for the fourth quarter and have a strong backlog for the first quarter of
2000. Current quarter results include foreign currency transaction gains of
$1.3 million.
"During the quarter, we accelerated our 128Mbit flash memory production
ramp to meet increased demand. Product gross margins decreased to 24% from 27%
in the second quarter. This was primarily due to lower than anticipated yields
on our 128Mbit products, and a 19% decline in the average selling price per
megabyte shipped. We also experienced higher than anticipated production costs
due to spot shortages of critical components. The 128Mbit yields have shown
significant improvement recently and are now back on plan. Towards the end of
the quarter, we completed internal qualification of the 256Mbit Double Density
technology and began customer shipments. We expect product gross margins to
improve slightly in the fourth quarter as we begin significant shipments of our
256Mbit products.
"Taiwan is back to normal production. The recent earthquake did not impact
our third quarter results. The financial impact of the earthquake is expected
to be confined to the fourth quarter and manifest itself primarily in terms of
spot shortages and increased expediting costs. We currently believe that the
fourth quarter megabytes shipped will exceed megabytes shipped in the third
quarter. However, the projected quarter over quarter growth in revenues will be
lower than the growth rate experienced in the third quarter. In the first
quarter of 2000, we anticipate improved margins due to the higher pricing we
instituted on new orders. The shift to the more productive 256Mbit technology
should also help to significantly increase product availability in the first
quarter of 2000.
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"I am particularly pleased with the strategic initiatives which we recently
announced, including the 512Mbit and 1 Gigabit flash memory co-development and
manufacturing joint venture with Toshiba, the launch of SD (Secure Digital)
memory card with Matsushita and Toshiba, the acquisition of the Invox patent
portfolio and the PIC (Personal Information Carrier) government award."
This news release contains forward looking statements including the
Company's expectations for future product revenues and bookings, average selling
prices, gross margin and anticipated product cost reductions that are based on
current expectations and involve risks and uncertainties that may affect the
Company's business, financial condition and results of operations. In addition
to the factors discussed above, other risks include: future average selling
price erosion due to price competition; the timely introduction and acceptance
of new consumer products that incorporate the Company's flash storage devices;
seasonality of product sales; the timely and successful manufacturing ramp up of
new product generations with acceptable yields and lower manufacturing costs,
including the 128Mbit and 256Mbit technologies; the availability of adequate
supply of flash memory wafers from USIC and USC in Taiwan and of other critical
materials and components; the successful ramp up of assembly operations in China
and Taiwan; 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 and other geographic
regions as they affect SanDisk's customers; the successful negotiation of a
definitive agreement with Toshiba on the announced memo of understanding
regarding joint development and manufacturing of advanced flash memories; the
successful signing of a definitive agreement with Matsushita and Toshiba for the
Secure Digital memory card; and the other risks detailed from time to time in
the Company's Securities and Exchange Commission filings and reports, including,
but not limited to, the Form 10Q/A for the quarter ended June 30, 1999 and the
Annual Report on Form 10-K for the year ended December 31, 1998. Future results
may differ materially from those previously reported. The Company assumes no
obligation to update the information in this release.
SanDisk Corporation designs, develops and markets flash memory data storage
products used in a wide variety of electronic systems. The Company has
optimized its flash memory storage solution, known as "system flash", to address
the needs of many emerging applications in the consumer electronics and
industrial/communications markets. The Company's products include removable
CompactFlash products and FlashDisk cards, embedded FlashDrives and Flash
ChipSet products and MultiMediaCards. SanDisk is based in Sunnyvale, CA.
SanDisk's web site / home page address: http:/ / www.sandisk.com
CompactFlash and CF are trademarks of SanDisk Corporation.
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SanDisk Corporation
Condensed Consolidated Statements of Income
(In thousands, except per share data)
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Three months ended Nine months ended
September 30, September 30,
1999 1998 1999 1998
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Revenues:
Product $ 57,624 $ 24,143 $ 135,850 $ 73,049
License and royalty 9,910 7,935 28,369 24,492
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Total revenues 67,534 32,078 164,219 97,541
Cost of sales 43,897 18,840 101,264 57,172
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Gross profits 23,637 13,238 62,955 40,369
Operating expenses:
Research and development 6,943 4,805 18,162 13,610
Sales and marketing 6,647 3,964 17,575 12,163
General and administrative 3,091 1,836 8,381 5,589
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Total operating expenses 16,681 10,605 44,118 31,362
Operating income 6,956 2,633 18,837 9,007
Interest and other income, net 2,753 1,283 5,822 3,900
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Income before taxes 9,709 3,916 24,659 12,907
Provision for income taxes 3,204 1,410 8,137 4,645
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Net income $ 6,505 $ 2,506 $ 16,522 $ 8,262
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Earnings per share
Basic $ 0.24 $ 0.09 $ 0.61 $ 0.32
Diluted $ 0.21 $ 0.09 $ 0.55 $ 0.30
Average common shares outstanding
Basic 27,316 26,411 27,009 26,200
Diluted 30,497 27,392 29,775 27,749
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ScanDisk Corporation
Condensed Consolidated Balance Sheets
(In thousands; unaudited)
ASSETS
September 30, 1999 December 31, 1998
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Current Assets:
Cash and cash equivalents $ 22,469 $ 15,384
Short-term investments 116,717 119,074
Accounts receivable 43,700 20,400
Inventories 20,684 8,922
Deferred tax assets 15,900 15,900
Prepaid expenses and other current assets 3,888 6,694
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Total current assets 223,358 186,374
Property and equipment, net 28,869 17,542
Investment in foundry 51,208 51,208
Deposits and other assets 4,768 617
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Total Assets $308,203 $255,741
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 25,806 $ 6,938
Accrued payroll and related expenses 7,156 3,768
Other accrued liabilities 20,492 9,745
Deferred revenue 24,103 24,452
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Total current liabilities 77,557 47,903
Stockholders' Equity:
Common stock 193,090 186,120
Retained earnings 37,556 21,718
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Total stockholders' equity 230,646 207,838
Total Liabilities and ---------- ---------
Stockholders' Equity $308,203 $255,741
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