SanDisk Announces Second Quarter Results

SanDisk® Corporation (NASDAQ:SNDK), the world’s largest supplier of flash storage card products, today announced results for the second quarter ended July 1, 2007. Second quarter revenue increased 15% on a year-over-year basis to $827 million and net income in accordance with U.S. Generally Accepted Accounting Principles (GAAP) was $28 million, or $0.12 per diluted share, compared to GAAP net income of $96 million, or $0.47 per diluted share, in the second quarter of 2006.

Excluding the impact of acquisition-related charges, stock compensation expense and the related tax effect, second quarter non-GAAP net income was $72 million, or $0.30 per diluted share, compared to second quarter 2006 non-GAAP net income of $118 million, or $0.58 per diluted share.

“Demand for our products in the retail channel recovered nicely in the second quarter, resulting in record megabyte sales. In particular, SanDisk’s growing strength in Europe and other international markets doubled our international unit sales compared to last year,” said Eli Harari, Chairman and CEO. “Product gross margins stabilized despite substantial price reductions in the second quarter. We expect product gross margins to improve gradually in the second half of the year, driven by more moderate price declines resulting from an expected improvement in the balance between demand and supply, declining manufacturing costs and strength in our income from royalties. The flurry of new Flash memory enabled, highly innovative consumer and mobile products coming from our customers, our competitors, and ourselves, we believe, will fuel strong demand for our products in the second half of 2007 and in 2008. Our strategic investments in leading edge technology and IP, captive low-cost manufacturing capacity, product innovation and global retail channels position us exceptionally well to profit in the expected industry growth cycle.”

Key Metrics and Highlights
Product revenue was $720 million in the second quarter, up 13% year-over-year.
License and royalty revenue for the second quarter was $107 million, up 30% year-over-year.
Total megabytes sold in the second quarter increased 217% on a year-over-year basis and 50% from the first quarter of 2007.
Average price per megabyte sold declined 65% on a year-over-year basis and 26% sequentially.
Average retail card capacity in the second quarter was 1475 megabytes, up 95% from the second quarter of 2006 and up 20% sequentially.
GAAP product gross margin in the second quarter was 16.2%, compared to 32.4% in the second quarter of 2006.
Non-GAAP product gross margin for the second quarter was 19.0% compared to 32.8% in the second quarter of 2006 and up from 18.5% in the first quarter of 2007.
GAAP operating income for the second quarter of 2007 was $14 million compared to GAAP operating income of $129 million in the second quarter of 2006.
Non-GAAP operating income was $74 million, or 9% of revenue, compared to non-GAAP operating income of $159 million, or 22% of revenue in the second quarter of 2006 and up from 6% in the first quarter of 2007.
SanDisk expanded its line of Solid State Drives (SSD) to include the 2.5 inch 64-gigabyte (GB) SSD targeted as a high performance, lower total cost of ownership replacement for hard drives used in notebook PCs.
IBM selected SanDisk’s 2.5 inch SSD for storage within the BladeCenter® HS21 XM, which features higher processing performance at lower power levels than traditional hard drives.
SanDisk and Microsoft signed an agreement for a next-generation software and hardware solution to place application programs and personal customization on USB flash drives and flash cards.
SanDisk introduced two corporate USB flash drives with mandatory security and optional centralized control.
Three new high capacity mobile cards were announced to meet consumer’s growing demand for handset storage: 6 and 8-GB1 microSD™ High Capacity cards and a 4-GBMemory Stick Micro™ (M2).
SanDisk launched its highest speed Extreme Compact Flash® and SD™ Plus memory cards and its fastest USB drive in a marketing partnership with Ducati featuring speed and performance.

Scheduled Interviews
SanDisk Corporation Chairman and Chief Executive Officer, Eli Harari, is scheduled to appear on CNBC’s “Closing Bell with Maria Bartiromo,” on July 19, 2007 at approximately 1:15 p.m. PDT. Judy Bruner, SanDisk’s Executive Vice President, Administration and CFO, is scheduled to appear on Bloomberg TV’s “Bloomberg On The Markets,” July 20, 2007 beginning at approximately 9:30 a.m. PDT.

Conference Call
SanDisk’s second quarter 2007 conference call is scheduled for 2:00 p.m. PDT, Thursday, July 19, 2007. 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) 312-1292. The dial-in password is 4682584. 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 our consumer and OEM products, including our mobile products, expected industry-wide growth, future profits, an increase in product gross margins, improved balance between market supply and demand, manufacturing cost reductions, strong royalty income, expected technology transitions and the timing and cost benefits thereof, our planned investments in advanced technologies, products, markets and our brand, and scheduled appearances by our Chairman and CEO and our CFO 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, for example, in our solid state drives and our MP3 players, or a slower adoption rate for our products in current and new markets that we are targeting,
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,
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 56-nanometer NAND flash technology or the ramp-up of the 300mm flash fabrication facility,
our inability to make additional planned smaller geometry conversions in a timely manner,
less than expected growth in the average megabyte capacity per card,
higher than expected operating expenses,
higher than anticipated capital equipment expenditures,
fluctuations in license and royalty revenues,
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,
risks related to our acquisition of msystems, including that we may not realize the expected benefits of the acquisition due to integration challenges or that we may incur substantial costs or other damages associated with pending or future litigation related to the merger or costs or damages related to msystems’ prior stock option grant practices,
adverse results in litigation affecting us,
the risk that scheduled appearances by our executives could be cancelled or delayed by us or the network, 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 31, 2006 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.