Crucial 2012 Annual Report Download - page 36

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DRAM
For the year ended 2012 2011
(percentage change from prior period)
Net sales (12)% (28)%
Average selling prices per gigabit (45)% (39)%
Gigabits sold 59 % 19 %
Cost per gigabit (32)% (23)%
The increase in gigabit sales of DRAM products for 2012 as compared to 2011 was primarily due to increased output
obtained from our Inotera joint venture, the effects of a shift in mix to higher-density products and improved product and
process technologies. The gross margin percentage on sales of DRAM products declined from 2011 to 2012 primarily due to
the decreases in average selling prices mitigated by cost reductions. DRAM sales and gross margins for 2012 were adversely
impacted by the effects of the $58 million charge to revenue in 2012 for a settlement with a customer.
We have the right and obligation to purchase 50% of Inotera's wafer production capacity under the Inotera Supply
Agreement. As a result of our March 7, 2012 equity contribution to Inotera, we expect to receive a higher share of Inotera's 30-
nanometer output when it becomes available as a result of Inotera capital investments enabled by this investment. DRAM
products acquired from Inotera accounted for 46% of our DRAM gigabit production for 2012 as compared to 33% for 2011 and
23% for 2010. The higher level of production from Inotera was achieved through Inotera's continued transition to advanced
product and process technologies. We primarily obtained DDR3 DRAM products for the PC market from Inotera in 2012 and
2011. Our cost of wafers purchased under the Inotera Supply Agreement is based on a margin-sharing formula among Nanya,
Inotera and us. 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. Our cost of products purchased under the Inotera Supply Agreement in 2012 were lower than our cost
of similar products manufactured in our wholly-owned facilities.
Due to significant market declines in the selling prices of DRAM, Inotera incurred net losses of $259 million for its six-
month period ended June 30, 2012 and $737 million for its fiscal year ended December 31, 2011. Under generally accepted
accounting principles in the Republic of China, Inotera reported a loss for its quarter ended September 30, 2012 of an
additional New Taiwan dollars 4,390 million (approximately $150 million U.S. dollars). In addition, Inotera's current liabilities
exceeded its current assets by $1.85 billion as of June 30, 2012, which exposes Inotera to liquidity risk. As of June 30, 2012
and December 31, 2011, Inotera was also not in compliance with certain 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 obtained a
waiver from complying with its financial covenants through June 30, 2012 and has requested an additional waiver from these
requirements. Inotera's management has developed plans to improve its liquidity. There can be no assurance that Inotera will
be successful in obtaining an additional waiver or improving its liquidity.
NOR Flash
Sales of NOR Flash products for 2012 declined from 2011 primarily due to decreases in sales of wireless NOR Flash
products, as a result of weakness in demand from certain customers and the continued transition of wireless applications to
NAND Flash products that led to significant declines in average selling prices and sales volume. Our gross margin percentage
on sales of NOR Flash products declined from 2011 to 2012 primarily due to decreases in average selling prices, inventory
write-downs and costs of underutilized capacity.
Sales of NOR Flash products increased for 2011as compared to 2010 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 Flash
products for 2011 improved slightly as compared to 2010 primarily due to cost reductions.