Crucial 2012 Annual Report Download - page 33

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Total net sales for 2011 increased 4% as compared to 2010 primarily due to increases in WSG and ESG sales as a result of
the acquisition of Numonyx in May 2010. DSG sales for 2011 decreased 31% as compared to 2010 primarily due to declines
in average selling prices mitigated by increases in gigabit sales. NSG sales for 2011 increased 4% as compared to 2010
primarily due to increases in gigabit sales partially offset by declines in average selling prices.
Gross Margin
Our overall gross margin percentage declined from 20% for 2011 to 12% for 2012 primarily due to decreases in the gross
margin percentage for DSG and WSG as a result of significant declines in average selling prices. Cost reductions from
improvements in product and process technologies in 2012 mitigated the effect of significant declines in average selling prices
for all reportable operating segments. Costs of our underutilized capacity, primarily associated with decreased production in
our NOR Flash fabrication facilities and the ramp of our IMFS NAND Flash fabrication facility, were $141 million, $133
million and $98 million for 2012, 2011 and 2010, respectively.
Our overall gross margin percentage declined from 32% for 2010 to 20% for 2011 primarily due to a significant decline in
the gross margin for DSG as a result of the dramatic decreases in average selling prices mitigated by a reduction in costs per
gigabit. Declines in the gross margins of NSG, WSG and ESG, primarily due to decreases in average selling prices, also
contributed to the overall decline in gross margin for 2011 as compared to 2010. The impact of declines in average selling
prices for 2011 was partially offset by cost reductions.
Operating Results by Business Segments
NAND Solutions Group ("NSG")
For the year ended 2012 2011 2010
Net sales $ 2,853 $ 2,196 $ 2,113
Operating income 198 269 240
NSG sales and operating results track closely with our average selling prices, gigabit sales volumes and cost per gigabit for
our consolidated sales of NAND Flash products. (See "Operating Results by Product – NAND Flash" for further detail.) NSG
sales for 2012 increased 30% from 2011 primarily due to increases in gigabits sold partially offset by declines in average
selling prices. Increases in gigabits sold for 2012 were primarily due to the continued ramp of our new wafer fabrication
facility in Singapore and from improvements in product and process technologies. NSG sells a portion of its products to Intel
through IM Flash at long-term negotiated prices approximating cost. All other NSG products are sold to OEMs, resellers,
retailers and other customers (including Intel), which we collectively refer to as "trade customers."
NSG sales of NAND Flash products to trade customers increased 50% for 2012 as compared to 2011 primarily due to an
increase in gigabits sold partially offset by declines in average selling prices. NSG operating income declined from 2011 to
2012 primarily due to decreases in average selling prices mitigated by cost reductions. Cost reductions resulted primarily from
improvements in product and process technologies. NSG operating income for 2011 benefited from a $57 million gain from an
allocated portion of the Samsung patent cross-license agreement.
NSG sales of NAND Flash products to trade customers for 2011 decreased 2% from 2010 primarily due to declines in
average selling prices partially offset by increases in gigabits sold. NSG operating income for 2011 benefited from cost
reductions and the $57 million gain from the license agreement with Samsung, which were partially offset by the declines in
average selling prices.
The ramp of production at our new wafer fabrication facility in Singapore significantly increased our NAND Flash
production in 2012 and 2011. Due to the completion of the first phase of the ramp, we expect slower growth in our NAND
Flash production for 2013. Initially the new wafer fabrication facility in Singapore was operated under our IMFS joint venture
with Intel and our share of the operating costs and supply of NAND Flash from IMFS was adjusted for changes in our
ownership share in IMFS. Our share of IMFS output grew from 51% in the first quarter of 2011 to 78% in the second quarter
of 2012. On April 6, 2012, we acquired Intel's remaining ownership interest in IMFS and the assets of IMFT located at our
Virginia fabrication facility and terminated the IMFS supply agreement. Accordingly, we now obtain all of the NAND Flash
output from our Singapore and Virginia wafer fabrication facilities.