Crucial 2012 Annual Report Download - page 34

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On April 6, 2012, we also entered into a new supply agreement with Intel under which Intel purchases NAND Flash
products from us on a cost-plus basis. Margins on products sold to Intel on a cost-plus basis were not significantly different
than margins on sales for other trade customers for 2012. Aggregate NSG sales to Intel (including sales by IMFT at prices
approximating cost and sales by us under the new cost-plus supply agreement) were $986 million for 2012, $884 million for
2011 and $764 million for 2010.
DRAM Solutions Group ("DSG")
For the year ended 2012 2011 2010
Net sales $ 2,691 $ 3,203 $ 4,638
Operating income (loss) (500) 290 1,269
DSG sales and operating results track closely with our average selling prices, gigabit sales volumes and cost per gigabit for
our consolidated sales of DRAM products. (See "Operating Results by Product – DRAM" for further detail.) DSG sales for
2012 decreased 16% as compared to 2011 primarily due to declines in average selling prices partially offset by increases in
gigabits sold. DSG's operating margin declined from 2011 to 2012 due to decreases in average selling prices mitigated by cost
reductions as a result of improved product and process technologies. DSG sales and operating margins for 2012 were adversely
impacted by a $58 million charge for a settlement with a customer. In addition, DSG operating income for 2011 benefited from
a $75 million gain from an allocated portion of the Samsung patent cross-license agreement.
The significant declines in DSG sales and margins for 2011 compared to 2010 was primarily attributable to a severe
decrease in demand for PC DRAM, particularly for DDR3 DRAM, due to overall weakness in the PC market. Decreases in PC
DRAM margins for 2011 were mitigated by the relatively higher margins in our server and other premium markets.
DSG operating income for 2011 benefited from the following items as compared to the corresponding periods of 2010:
• lower SG&A costs primarily due to costs recognized in the third quarter of 2010 from the settlement of litigation in
DRAM antitrust matters;
• lower R&D costs primarily due to the DRAM R&D cost-sharing agreement with Nanya that commenced in the third
quarter of 2010; and
• the $75 million gain in 2011 from a license arrangement with Samsung.
Wireless Solutions Group ("WSG")
For the year ended 2012 2011 2010
Net sales $ 1,184 $ 1,959 $ 778
Operating income (loss) (370) 20 (23)
In 2012, WSG sales were comprised of NOR Flash, NAND Flash and DRAM in decreasing order of revenue. The 40%
decrease in WSG sales for 2012 as compared to 2011 was primarily due to declines in sales of wireless NOR Flash products as
a result of weakness in market demand and our customer group in particular, as well as a continued transition by customers to
NAND Flash. WSG sales in 2012 were also adversely impacted by lower sales of NAND Flash products sold in multi-chip
packages. The decline in WSG operating margin for 2012 was primarily due to the reductions in average selling prices and in
NOR Flash sales volumes. In addition, WSG operating margin for 2011 benefited from a $95 million gain from an allocated
portion of the Samsung patent cross-license agreement.
The 152% increase in WSG sales for 2011 as compared to 2010 was primarily due to the acquisition of Numonyx in May
2010. WSG experienced pricing pressure in 2011 due to weakness in demand from certain customers. During 2011 and 2010,
a portion of the NAND Flash sold by WSG was obtained from Hynix at market prices and by the end of 2011, substantially all
of this supply was obtained from lower-cost Micron production. The improvement in WSG operating margin for 2011 was
primarily due to the $95 million gain from the license agreement with Samsung.