Crucial 2014 Annual Report Download - page 37

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35
The increase in gigabit sales of DRAM products for 2014 as compared to 2013 was primarily due to higher production
volumes resulting from the MMJ Acquisition, increased supply under the new Inotera Supply Agreement and improved product
and process technologies, partially offset by the transition of one of our wafer fabrication facilities in Singapore from DRAM to
NAND Flash. In 2014, DRAM products produced by our MMJ Group facilities constituted 54% of our aggregate DRAM
gigabit production as compared to 9% in 2013.
In 2014, our cost of products purchased from Inotera was significantly higher than our cost of similar products
manufactured in our wholly-owned facilities and were higher than our costs in 2013. DRAM products acquired from Inotera
accounted for 38% of our DRAM gigabit production for 2014 as compared to 54% for 2013 and 46% for 2012.
Our gross margin percentage on sales of DRAM products for 2014 improved from 2013 primarily due to reductions in
costs and increases in average selling prices. Cost reductions for 2014 primarily reflected improvements in product and process
technologies and the comparatively lower manufacturing costs of the MMJ Group, partially offset by higher costs for product
obtained under the Inotera supply agreement and the sale of the MMJ Group's inventories recorded in the MMJ Acquisition.
The increase in gigabit sales of DRAM products for 2013 as compared to 2012 was primarily due to increased output
obtained from our Inotera joint venture under the new supply agreement, improved product and process technologies and the
MMJ Acquisition on July 31, 2013. Our gross margin percentage on sales of DRAM products for 2013 improved from 2012
primarily due to manufacturing cost reductions as a result of improvements in product and process technologies partially offset
by declines in average selling prices. DRAM sales and gross margins for 2012 were adversely impacted by the effects of a $58
million charge to revenue for a settlement with a customer.
NAND Flash
We sell a portion of our output of NAND Flash products to Intel through IMFT at long-term negotiated prices
approximating cost. (See "Operating Results by Business Segments – Storage Business Unit" for further detail.) We sell the
remainder of our NAND Flash products to trade customers.
For the year ended 2014 2013
(percentage change from prior period)
Sales to trade customers:
Net sales 27 % 15 %
Average selling prices per gigabit (23)% (18)%
Gigabits sold 65 % 40 %
Cost per gigabit (23)% (22)%
Increases in NAND Flash gigabits sold to trade customers for 2014 as compared to 2013 were primarily due to the
transition of one of our wafer fabrication facilities in Singapore from DRAM to NAND Flash production and improved product
and process technologies. Our gross margin percentage on sales of trade NAND Flash products for 2014 was relatively
unchanged from 2013 as manufacturing cost reductions offset declines in average selling prices. Manufacturing cost reductions
for 2014 as compared to 2013 primarily resulted from improvements in product and process technologies.
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.
NOR Flash
Sales of NOR Flash products for 2014 declined as compared to 2013 primarily due to decreases in sales of wireless NOR
Flash products as a result of the continued transition of wireless applications to NAND Flash products. Our gross margin
percentage on sales of NOR Flash products for 2014 declined as compared to 2013 primarily due to costs of underutilized
capacity in connection with the decrease in production of wireless products and decreases in average selling prices.