Crucial 2013 Annual Report Download - page 43

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We expect that our gigabit production and sales volumes of DRAM products will increase significantly in 2014 due to our
acquisition of Elpida. Elpida has 300mm wafer fabrication facilities in Japan and Taiwan that are dedicated to the production
of DRAM products. We expect that DRAM products produced by the acquired Elpida facilities will constitute over half of our
aggregate DRAM gigabit production in the first quarter of 2014 and result in significant increases in DSG and WSG DRAM
sales. In accounting for the Elpida acquisition, Elpida's inventories were recorded at fair value, based on their estimated future
selling prices, estimated costs to complete and other factors, which was approximately $200 million higher than the cost of
inventory recorded by Elpida prior to the acquisition. Of this amount, approximately $40 million was included in cost of goods
sold for 2013 and a significant portion of the reminder is expected to be included in costs of goods sold in the first quarter of
2014.
NAND Flash
We sell a portion of our output of NAND Flash products to Intel through IM Flash at long-term negotiated prices
approximating cost. (See "Operating Results by Business Segments – NAND Solutions Group" for further detail.) We sell the
remainder of our NAND Flash products to trade customers.
For the year ended 2013 2012
(percentage change from prior period)
Sales to trade customers:
Net sales 15 % 19 %
Average selling prices per gigabit (18)% (55)%
Gigabits sold 40 % 164 %
Cost per gigabit (22)% (54)%
Increases in NAND Flash gigabits sold to trade customers for 2013 as compared to 2012 were primarily due to improved
product and process technologies, increased output available for sale to trade customers due to the restructure of our IM Flash
agreement with Intel in April 2012 and the ramp-up of our fabrication facility in Singapore throughout 2012. Our gross margin
percentage on sales of NAND Flash products for 2013 improved from 2012 as manufacturing cost reductions outpaced declines
in average selling prices. Manufacturing cost reductions for 2013 as compared to 2012 reflect improvements in product and
process technologies.
Increases in NAND Flash gigabits sold to trade customers for 2012 as compared to 2011 was primarily due to the ramp of
the IMFS fabrication facility and improved product and process technologies. The new cost-plus supply agreement with Intel
also contributed to the increase in gigabits sold to trade customers for 2012.
NOR Flash
Sales of NOR Flash products for 2013 declined as compared to 2012 primarily due to decreases in sales of wireless
products as a result of weakness in demand from certain customers and the continued transition of wireless applications to
NAND Flash products, which led to significant declines in average selling prices. Our gross margin percentage on sales of
NOR Flash products for 2013 improved as compared to 2012 primarily due to cost reductions.
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.
Operating Expenses and Other
Selling, General and Administrative
Selling, general and administrative ("SG&A") expenses for 2013 decreased 9% as compared to 2012 primarily due to a
reduction in legal costs and lower variable pay costs partially offset by $50 million of consulting, legal and other costs incurred
in connection with the acquisition of Elpida.