Crucial 2015 Annual Report Download - page 33

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31
The increase in gigabit sales volumes of DRAM products for 2015 as compared to 2014 was primarily due to increases in
gigabit production despite our continued preparation of fabrication facilities for production of the next technology node, which
constrained output. DRAM gigabit production growth in 2015 was also impacted by a shift to a higher mix of mobile and
DDR4 products, which have larger die sizes and therefore produce fewer bits per wafer. 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 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 facilities acquired in the MMJ Acquisition constituted 54% of our aggregate DRAM gigabit production
as compared to 9% in 2013.
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. DRAM products acquired
from Inotera accounted for 35% of our aggregate DRAM gigabit production for 2015 as compared to 38% for 2014 and 54%
for 2013.
Our gross margin percentage on sales of DRAM products for 2015 improved from 2014 as manufacturing cost reductions
outpaced declines in average selling prices. 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.
Non-Volatile Memory
The following discussion focuses on sales of NAND Flash products which constituted substantially all of Non-Volatile
Memory sales through 2015. This discussion of NAND Flash excludes NAND Flash products manufactured and sold to Intel
through IMFT at long-term negotiated prices approximating cost.
For the year ended 2015 2014
(percentage change from prior period)
Sales to trade customers:
Net sales 20 % 27 %
Average selling prices per gigabit (17)% (23)%
Gigabits sold 45 % 65 %
Cost per gigabit (10)% (23)%
The increase in NAND Flash gigabits sold to trade customers for 2015 as compared to 2014 was primarily due to higher
production from improved product and process technologies and the transition of our wafer fabrication facility in Singapore
from DRAM to NAND Flash production. Increases in gigabit production of NAND Flash products for 2015 as compared to
2014 were limited by a shift in product mix to higher levels of managed NAND Flash and MCP products, which have both
higher average selling prices and costs per gigabit. Increases in NAND Flash gigabits sold to trade customers for 2014 as
compared to 2013 were primarily due to the transition of our wafer fabrication facility in Singapore from DRAM to NAND
Flash production and improvements in product and process technologies.
Our gross margin percentage on sales of trade NAND Flash products for 2015 declined from 2014 as the declines in
average selling prices outpaced manufacturing cost reductions resulting from improvements in 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.