Crucial 2015 Annual Report Download - page 30

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Net Sales
For the year ended 2015 2014 2013
CNBU $ 6,725 42% $ 7,333 45% $ 3,462 38%
MBU 3,692 23% 3,627 22% 1,214 13%
SBU 3,687 23% 3,480 21% 2,824 31%
EBU 1,999 12% 1,774 11% 1,275 14%
All Other 89 1% 144 1% 298 3%
$16,192 $16,358 $ 9,073
Percentages reflect rounding and may not total 100%.
Total net sales for 2015 decreased 1% as compared to 2014 primarily due to lower CNBU sales as a result of decreases in
DRAM sales as declines in average selling prices outpaced increases in gigabit sales volumes. SBU and MBU sales for 2015
increased as compared to 2014 as a result of higher NAND Flash sales due to increases in gigabit sales volumes partially offset
by declines in average selling prices. EBU sales for 2015 increased as compared to 2014 due to higher sales volumes as a
result of increases in market demand. The increases in gigabit sales volumes for 2015 were primarily attributable to higher
manufacturing output due to improvements in product and process technologies.
Total net sales for 2014 increased 80% as compared to 2013 primarily due to higher CNBU and MBU sales resulting from
the MMJ Acquisition. Net sales for all segments in 2014 also benefitted, as compared to 2013, from increases in DRAM and
NAND Flash sales volumes driven primarily by higher manufacturing output as a result of improvements in product and
process technology and an increased share of output from Inotera.
Gross Margin
Our overall gross margin percentage declined to 32% for 2015 from 33% for 2014 primarily due to declines in average
selling prices partially offset by manufacturing cost reductions. CNBU and SBU experienced declines in gross margin
percentage for 2015 as compared to 2014 as declines in average selling price outpaced manufacturing cost reductions. MBU's
gross margin percentage for 2015 improved as compared to 2014 as manufacturing cost reductions outpaced declines in
average selling prices.
Since January 2013, we have purchased all of Inotera's DRAM output at prices reflecting discounts from market prices for
our comparable components under a supply agreement. In the second quarter of 2015, we executed a supply agreement, to be
effective beginning on January 1, 2016 (the "2016 Supply Agreement"), which will replace the current agreement. Under the
2016 Supply Agreement, the price for DRAM products sold to us will be based on a formula that equally shares margin
between Inotera and us. The 2016 Supply Agreement has an initial two-year term, followed by a three-year wind-down period,
and contemplates negotiations in late 2016 with respect to a two-year extension, and annual negotiations thereafter with respect
to successive one-year extensions. Upon termination of the initial two-year term of the 2016 Supply Agreement, or any
extensions, we would purchase DRAM from Inotera during the wind-down period. Our share of Inotera's capacity would
decline over the wind-down period. In 2015 and 2014, our cost of products purchased from Inotera was significantly higher
than our cost of similar products manufactured in our wholly-owned facilities, due to the pricing formula of the current
agreement and strong market conditions. Under the market conditions prevailing in the fourth quarter of 2015, costs of
products purchased under the current agreement were higher than they would have been under the pricing formula of the 2016
Supply Agreement. We purchased $2.37 billion, $2.68 billion, and $1.26 billion of DRAM products from Inotera in 2015,
2014, and 2013, respectively.
Our overall gross margin percentage improved to 33% for 2014 from 20% for 2013 primarily due to improvements in the
gross margin percentage for CNBU and MBU as a result of higher margins for DRAM products. The gross margin
improvements for CNBU and MBU for 2014 as compared to 2013 resulted primarily from the MMJ Acquisition,
manufacturing cost reductions, and higher average selling prices for CNBU. 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. For 2014 and the fourth quarter of 2013, our costs of goods sold for DRAM products included the sale of the MMJ
Group's inventories recorded at fair value in the MMJ Acquisition, which was higher than the manufacturing cost of such
inventories. This increased our costs of goods sold by approximately $153 million for 2014 and $41 million for 2013.