Crucial 2013 Annual Report Download - page 42

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Operating Results by Product
Net Sales by Product
For the year ended 2013 2012 2011
DRAM 4,361 48% 3,178 39% 3,620 41%
NAND Flash 3,589 40% 3,627 44% 3,193 36%
NOR Flash 792 9% 977 12% 1,547 18%
Other 331 3% 452 5% 428 5%
$ 9,073 100% $ 8,234 100% $ 8,788 100%
In order to balance our future product mix in anticipation of the closing of the Elpida transaction, in the fourth quarter of
2013 we began to transition production at our DRAM fabrication facility in Singapore from DRAM to NAND Flash. We
expect this transition to NAND Flash production will occur over approximately four quarters, depending on market conditions
and result in a marginal reduction in wafer production during the period of this transition.
DRAM
For the year ended 2013 2012
(percentage change from prior period)
Net sales 37 % (12)%
Average selling prices per gigabit (11)% (45)%
Gigabits sold 55 % 59 %
Cost per gigabit (25)% (32)%
The increase in gigabit sales of DRAM products for 2013 as compared to 2012 was primarily due to increased output
obtained from our Inotera joint venture under the new supply agreement, improved product and process technologies and the
acquisition of Elpida on July 31, 2013. Effective on January 1, 2013, we entered into the new Inotera Supply Agreement under
which we purchase substantially all of Inotera's output at a purchase price based on a discount from market prices for our
comparable components. Prior to the new Inotera Supply Agreement we had the right to purchase 50% of Inotera's wafer
production capacity based on a margin-sharing formula among Nanya, Inotera and us. (See "Overview – Inotera Memories,
Inc.") Our cost of product purchased from Inotera under these supply agreements was $1,260 million for 2013, $646 million
for 2012, and $641 million for 2011. Our cost of product purchased from Inotera has increased since the beginning of calendar
2013 and was higher than our cost of similar products manufactured in our wholly-owned facilities in the fourth quarter of
2013.
DRAM products acquired from Inotera accounted for 54% of our DRAM gigabit production for 2013 as compared to 46%
for 2012 and 33% for 2011. As of June 30, 2013, Inotera's current liabilities exceeded its current assets by $1.0 billion, which
exposes Inotera to liquidity risk. Additionally, Inotera incurred net losses of $541 million for its fiscal year ended December
31, 2012. As of June 30, 2013, Inotera was not in compliance with certain of its loan covenants, and had not been in
compliance for the past several years, which may result in its lenders requiring repayment of such loans during the next year.
Inotera has applied for a waiver from complying with the June 30, 2013 financial covenants. Inotera's management has
implemented plans to improve its liquidity and for Inotera's six-month period ended June 30, 2013, Inotera generated net
income of $91 million; however, there can be no assurance that Inotera will be successful in sufficiently improving its liquidity
and complying with their loan covenants, which may result in its lenders requiring repayment of such loans during the next
year.
Our gross margin percentage on sales of DRAM products for 2013 improved from 2012 primarily due to manufacturing
cost reductions as a result of improvements in product and process technology partially offset by declines in average selling
prices. DRAM sales and gross margins for 2012 were adversely impacted by the effects of the $58 million charge to revenue
for a settlement with a customer.