Crucial 2011 Annual Report Download - page 36

Approximately half of our output of NAND Flash products has been sold to Intel through our IM Flash consolidated joint ventures at long-
term negotiated prices approximating cost. Sales of NAND Flash products to Intel were $884 million for 2011, $764 million for 2010 and $886
million for 2009. (See "Segment Operating Results - NAND Solutions Group" for further detail.) The remainder of our sales of NAND Flash
products is to "trade" customers (i.e., customers other than Intel).
We sell NAND Flash products in various forms, including discrete standalone devices as well as in multi-chip packages ("MCPs") and other
NAND Flash systems solution products. MCPs and system solutions products, which combine NAND Flash devices with a controller and/or other
semiconductor devices, generally have significantly higher average selling prices and costs per gigabit than discrete NAND Flash devices. Our
sales of MCPs and other system solution NAND Flash products increased in 2011 from 2010 due primarily to our acquisition of Numonyx and to
targeted efforts at increasing sales of these products. Our mix of single-level cell ("SLC") and multi-level cell ("MLC") NAND Flash products
also impacted our average selling prices and sales volumes. SLC products have fewer bits per wafer but higher average selling prices per gigabit
as compared to MLC products. These shifts in the mix of our products increased our average selling prices and cost per gigabit in 2011 as
compared to 2010.
Increases in gigabits sold for both 2011 and 2010 were primarily due to increased production efficiencies. The ramp of the IMFS wafer
fabrication facility in Singapore also contributed to the increase in production for 2011. Our acquisition of Numonyx in May 2010 also contributed
to increases in sales volumes to trade customers in 2011 and 2010.
The gross margin percentage on sales of NAND Flash products to trade customers for 2011 declined as compared to 2010 primarily due to the
declines in average selling prices. The gross margin percentage on sales of NAND Flash products to trade customers for 2010 improved as
compared to 2009 primarily due to cost reductions and by the increases in average selling prices.
NOR Flash
The increases in our sales of NOR Flash products for 2011 and 2010 were primarily due to our acquisition of Numonyx in May 2010 as all of
our sales of NOR Flash originated from this acquisition. Our gross margin percentage on sales of NOR products for 2011 improved slightly as
compared to 2010 primarily due to cost reductions.
Operating Expenses and Other
Selling, General and Administrative
Selling, general and administrative ("SG&A") expenses for 2011 increased 12% as compared to 2010 primarily due to increased costs
associated with Numonyx operations and higher payroll costs, partially offset by a reduction in legal costs. The reduction in legal costs from 2010
to 2011 was primarily due to $64 million of costs in 2010 for estimated settlements in an indirect purchasers antitrust case and other matters.
SG&A expenses for 2010 increased 49% from 2009 primarily due to the costs associated with the indirect purchasers settlements, increased
costs associated with Numonyx operations, higher payroll costs and Numonyx acquisition costs. The increase in SG&A expenses for 2010 was
partially offset by a reduction in expenses for imaging operations as a result of the sale of a 65% interest in Aptina Imaging Corporation
("Aptina") in the fourth quarter of 2009. We expect that SG&A expenses will approximate $155 million to $165 million for the first quarter of
2012.
Research and Development
R&D expenses for 2011 increased 27% from 2010 primarily due to the following:
• increased costs associated with R&D activities for acquired Numonyx operations;
• higher payroll costs; and
• a higher volume of pre-qualification wafers processed.
Increases in R&D costs for 2011 from the above factors was partially offset by amounts received under a DRAM cost-sharing arrangement
with Nanya that commenced in the third quarter of 2010. As a result of amounts reimbursable from Nanya under the DRAM R&D cost-sharing
arrangement, R&D expenses were reduced by $141 million for 2011 and $51 million for 2010.
35