SanDisk 2012 Annual Report Download - page 149

This is a TAB type table. Insert
conts here. Annual Report
License and Royalty Revenues.
FY 2012
Percent
Change FY 2011
Percent
Change FY 2010
(In millions, except percentages)
License and royalty revenues ............ $ 374.0 (0%) $ 374.5 3% $ 363.9
Our fiscal year 2012 license and royalty revenues remained flat compared to fiscal year 2011, with no
material changes in significant licensees or licensable revenues.
The increase in our fiscal year 2011 license and royalty revenues, when compared to fiscal year 2010, was
primarily due to higher licensable flash memory revenues reported by our licensees.
Gross Profit and Margins.
FY 2012
Percent
Change FY 2011
Percent
Change FY 2010
(In millions, except percentages)
Product gross profit .................... $1,309.2 (37%) $ 2,064.6 9% $ 1,898.2
Product gross margins (as a percent of
product revenues) ................... 28.0% 39.0% 42.5%
Total gross margins (as a percent of
total revenues) .................. 33.3% 43.1% 46.9%
Product gross margins decreased in fiscal year 2012, compared to fiscal year 2011, due primarily to declines
in average selling price per gigabyte of (45%) exceeding cost reduction per gigabyte of (36%). The degree to
which price decline exceeded cost decline was primarily due to oversupply in the NAND industry in the first half
of fiscal year 2012. Costs per gigabyte improved over the prior year primarily due to wafer production
transitioning from 24-nanometer to 19-nanometer and lower usage of non-captive memory. This cost reduction
includes higher inventory-related charges in fiscal year 2012, offset by a reduction in fab start-up costs that
occurred in fiscal year 2011 and did not recur in fiscal year 2012.
Product gross margins decreased in fiscal year 2011, compared to fiscal year 2010, due primarily to average
selling price reductions exceeding cost reductions. Costs per gigabyte decreased over the prior year by 30%,
primarily due to wafer production transitioning from 32-nanometer to 24-nanometer. This cost reduction includes
the negative impact of the appreciation of the Japanese yen to the U.S. dollar for wafer purchases denominated in
Japanese yen, increased sale of products incorporating non-captive flash memory, startup costs incurred by Flash
Forward, a ($25) million charge related to both a power outage in early March 2011 and an earthquake on
March 11, 2011, that affected Flash Ventures, and an increase in amortization of acquisition-related intangible
assets related to our acquisition of Pliant Technology, Inc., or Pliant.
Research and Development.
FY 2012
Percent
Change FY 2011
Percent
Change FY 2010
(In millions, except percentages)
Research and development .............. $ 602.7 10% $ 547.4 30% $ 422.6
Percent of revenue ..................... 11.9% 9.7% 8.7%
Our fiscal year 2012 research and development expense increased from fiscal year 2011 primarily due to a
net compensation expense increase of $27 million driven by higher headcount, partially offset by lower incentive
compensation. In addition, we incurred higher third-party engineering costs of $14 million and technology
license and equipment expense of $13 million.
43