Crucial 2011 Annual Report Download - page 35

Partially as a result of a decrease in DRAM product sales in 2011 and an increase in NAND Flash product sales during the same period, in the
fourth quarter of 2011, sales of NAND Flash products were higher than sales of DRAM products. This marks the first time in our history that the
primary product by revenue was not DRAM.
DRAM
The increase in gigabit sales of DRAM products for 2011 as compared to 2010 was primarily due to increased output obtained from our
Inotera joint venture and improved production efficiencies. Sales of DDR3 and DDR2 DRAM, were 51% and 25%, respectively, of total DRAM
sales for 2011 and 37% and 40%, respectively, of total DRAM sales for 2010.
The gross margin percentage on sales of DRAM products for 2011 declined significantly as compared to 2010 primarily due to the declines in
average selling prices particularly for DDR3 DRAM sold into the PC market, partially offset by cost reductions resulting from improvements in
manufacturing efficiencies. The gross margin percentage for 2011 was also adversely affected by an increasing percentage of products obtained
from Inotera. The gross margin percentage on sales of DRAM products for 2010 improved significantly as compared to 2009 primarily due to cost
reductions and increases in average selling prices.
We have rights and obligations to purchase 50% of Inotera's wafer production capacity under a supply agreement with Inotera (the "Inotera
Supply Agreement"). DRAM products acquired from Inotera accounted for 33% of our DRAM gigabit production in 2011 as compared to 23%
for 2010 and 4% for 2009. Products obtained from Inotera in 2011 were primarily DDR3 for the PC market. Our cost of wafers purchased under
the Inotera Supply Agreement is based on a margin-sharing formula among Nanya, Inotera, and ourselves. Under such formula, all parties'
manufacturing costs related to wafers supplied by Inotera, as well as our and Nanya's revenue for the resale of products from wafers supplied by
Inotera, are considered in determining costs for wafers acquired from Inotera. In 2011, the cost of wafers purchased from Inotera was significantly
higher than our cost of wafers manufactured in our facilities. Because of significant market declines in the selling price of DRAM, Inotera
incurred net losses of $278 million for the six-month period ended June 30, 2011. Also, Inotera's current liabilities exceeded its current assets by
$2.3 billion as of June 30, 2011, which exposes Inotera to liquidity risk. Further, under generally accepted accounting principles in the Republic of
China, Inotera reported a loss for its quarter ended September 30, 2011 of an additional New Taiwan dollars 7,022 million (approximately $241
million U.S. dollars). Inotera's management has developed plans to improve its liquidity. We cannot assure you that Inotera's plan to improve its
liquidity will be successful.
NAND Flash
34
2011 2010
(percentage change from prior year)
Net sales
(28
)%
109
%
Average selling prices per gigabit
(39
)%
28
%
Gigabits sold
19
%
69
%
Cost reduction per gigabit
(23
)%
(35
)%
2011 2010
(percentage change from prior year)
NAND Flash sales to trade customers:
Net sales
31
%
81
%
Average selling prices per gigabit
(12
)%
26
%
Gigabits sold
50
%
44
%
Cost (reduction) increase per gigabit
2
%
(31
)%
NAND Flash sales to Intel:
Net sales
16
%
(14
)%
Average selling prices per gigabit
(24
)%
(49
)%
Gigabits sold
53
%
71
%
Cost reduction per gigabit
(25
)%
(50
)%