MILPITAS (dpa-AFX) - Flash memory card maker SanDisk Corp. (SNDK), Thursday reported a decline in second-quarter profit as increased product costs, research overheads, and higher tax provision offset growth in revenues. Nevertheless, adjusted earnings for the quarter increased from last year and topped Street estimates, as did revenues. Following the results, SanDisk shares gained 2.2 percent in extended trade on the Nasdaq.
Milpitas, California-based SanDisk reported net income of $248.4 million or $1.02 per share for the quarter, a decline from $257.9 million or $1.08 per share last year.
Results for the quarter included debt interest of $23.9 million, share-based expense of 14.4 million, income tax adjustments of $17.5 million, among others.
The prior-year quarter included share-based expense of $15 million, debt interest of $14 million, and tax adjustment of $32.7 million.
Excluding items, net income for the quarter was $278 million or $1.14 per share, an increase from $257.8 million or $1.08 per share last year.
On average, 15 analysts polled by Thomson Reuters expected earnings of $0.99 per share for the quarter. Analysts' estimates typically exclude special items.
Revenue for the quarter was $1.375 billion, an increase of 17 percent from $1.179 billion a year before. Seventeen Wall Street analysts expected revenues of $1.34 billion for the quarter.
SanDisk CEO Sanjay Mehrotra said revenue growth was driven by a broad product offering and well diversified Retail and OEM channels.
Product revenues, which form the main business, grew to $1.28 billion from $1.09 billion, while license and royalty increased to $93 million from $87 million.
Though SanDisk largely benefited with growth in the mobile and tablet markets, its quarterly results were impacted by lower margins due to higher product costs, and increased selling and research overheads.
The company's gross margin for the quarter dropped to 44.6 percent from 46.3 percent in the prior year quarter, while non-GAAP margin deteriorated to 45.3 percent from 46.7 percent.
Operating margin too declined to 27.6 percent from 30.4 percent, while adjusted margin slipped to 29.3 percent from 32 percent.
The company, seeking to develop innovative products, upped its research and development expense to $145.3 million from $99.8 million in the year-ago quarter. Further, it incurred a higher income tax provision at $116 million, compared with $100.9 million in the prior year.
At the end of the quarter, SanDisk had cash, cash equivalents, and short and long-term marketable securities of $5.28 billion, compared to $3.72 billion in the previous year.
During the quarter, SanDisk acquired Pliant Technology Inc., a developer of enterprise solid state drives, for about $327 million, enabling it to enter the fast-growing enterprise storage market. SanDisk expects the transaction to be dilutive to its fiscal year 2011 adjusted earnings by 2 to 3 percent, and accretive to adjusted earnings in fiscal year 2012.
SanDisk also augmented its embedded product line-up with the announcement of the SanDisk iNAND Extreme embedded flash drives. Combined with the iNAND and iNAND Ultra products, the iNAND family of products now cover the needs of all mobile market segments, from feature phones to high-end tablets.
SNDK closed Thursday's regular trade at $41.57, up $0.10 or 0.24, on a volume of 9.9 million shares on the Nasdaq. In after hours, the stock gained $0.93 or 2.24%.
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