Event Brief of Q2 2006 SanDisk Corp. Earnings Conference Call - Final.

Original Source: FD (FAIR DISCLOSURE) WIRE

PARTICIPANTS

. Lori Barker Padon, SanDisk Corp., Director, IR . Eli Harari, SanDisk Corp., CO-Founder, President, CEO . Judy Bruner, SanDisk Corp., EVP of Admin., CFO . Paul Coster, JP Morgan, Analyst . Daniel Amir, WR Hambrecht, Analyst . Eric Gomberg, Thomas Weisel Partners, Analyst

. Amanda Hindlian, Goldman Sachs, Analyst . Satya Chillara, American Technology, Analyst . Gurinder Kalra, CIBC, Analyst . Daniel Gelbtuch, CIBC, Analyst . Craig Ellis, Citigroup, Analyst . Prada Lahairia, Deutsche Bank, Analyst . Jay Iyer, Morgan Stanley, Analyst . Mark Fitzgerald, Banc of America, Analyst

OVERVIEW

Management reported that for 2Q06, product revenue was up 40% YoverY and up 18% sequentially. Excluding stock compensation and acquisition-related charges, 2Q06 non-GAAP operating income of $159m or 22% of revenue was up 50% in dollars on a YoverY basis. SNDK ended 2Q06 with $2.7b in cash, short-term, and long-term investments. The Co. expects 3Q06 license and royalty revenue to be in the range of $68-72m.

FINANCIAL DATA

A. Key Data From Call 1. 2Q06 non-GAAP operating income, excluding stock compensation and acquisition-related charges = $159m or 22% of revenue. 2. 2Q06 non-GAAP OpEx, excluding stock compensation and acquisition-related charges = $133m. 3. 2Q06 DSO = 45 days.

4. 2Q06 inventory = $378m. 5. Cash, short-term, and long-term investments at the end of 2Q06 = $2.7b.

PRESENTATION SUMMARY

S1. Business Review (E.H.) 1. 2Q06 Results: 1. 2Q06 was the Co.'s best ever for OEM sales and the second best qtr. for retail with record units and megabytes sold. 2. The star of 2Q06 continued to be the Co.'s growing mobile card business in handsets where it sold not only strong bundling activity with all the major handset OEMs, but also continuing traction in the mobile retail aftermarket, where SNDK now sells its cards through approx. 54,000 storefronts. 3. In the US, as well as in Europe, SNDK commented that it has developed excellent partnerships with most of the large mobile network operators to sells its cards with the music and camera enabled handsets. 4. The number of handset models with card slots continues to grow steadily and reached [494] in 2Q06. 1. SNDK believes that this market is still in its early stages and it is excited by its future growth potential for the Co.

in the coming years. 5. According to MPD, independent market data, the Co.'s mobile cards commanded 96% market share in the US retail in June. 6. Retail sales are aided by solid sales of cards for digital cameras, where the Co.'s SanDisk Ultra and SanDisk Extreme product lines are gaining wide popularity with prosumers and professional photographers. 7. Last week, SNDK introduced its Extreme IV card, which had up to 40 megabyte per second right rate, by far, the world's fastest flash cards.

1. This announcement was made together with several of the leading professional digital camera makers, including Hasselblad, Nikon, and Leaf. 2. The Co. challenged its system engineers to meet heretofore unheard of re-drive performance flash storage. 1. SNDK reported that this is an important milestone for flash because at these performance levels, flash begins to compete favorably on performance with the rotating disc drives. 8. Sales of the Co.'s Sansa line of MP3 players grew nicely in 2Q06, coming primarily from US retail, where its unit share for US retail flash players grew to 15% in June, according to MPD data.

1. The Co. is encouraged by the level of interest and support it is receiving from the major retailers in the US and Canada.

2. SNDK appreciates exciting design of the Sansa e200 and the strong value proposition for its expanding Sansa lineup offers to consumers. 3. Microsoft's recent announcement of their intent to enter the audio player market is another indication of the growing

importance of this consumer appliance. 4. Based on what they have publicly said, the Co. believes that Microsoft will mimic Apple's proprietary closed system solution, which will provide SNDK the opportunity to continue to clearly differentiate its Sansa platform as the open system alternative that delivers the best value proposition particularly at the $50 to $150 segment of the audio player market.

9. The partnerships that the Co. is developing with the various

music services will become more visible in the coming quarters, and it will further enhance the Sansa user experience.

10. In 2H06, SNDK expects to significantly expand its presence in audio players in Europe, the Middle East, and Asia. 11. On the operation side, SNDK reported that 2Q06 was a good qtr. for continuing to ramp Fab 3 wafer starts while concurrently executing the 300-millimeter transition to 70-nanometer 8 gigabit MLC. 1. The Co. expects the transition to 70-nanometer on 300-millimeter wafers to be essentially completed by the end of 3Q06, which means that it will be out of the 90-nanometer on both 200-millimeter and 300-millimeter wafers. 1. These developments should provide SNDK with a captive output that carries an attractive cost structure for the substantial Fab 3 capacity coming on stream in 2H06. 2. This ramping of captive capacity will likely reduce at least temporarily the Co.'s reliance on non-captive supply, although it expects its future sourcing to continue to have a non-captive portion within the flexible supply model that it has relied upon in the past.

2. 2H06 Outlook: 1. SNDK expects the demand and supply should come into balance during 3Q06, as it heads into the fall.

2. The Co.'s 3Q is typically back-end loaded with back-to-school

sales. 3. In 4Q06, SNDK expects a traditionally strong holiday sales to drive demand, particularly from two major growth engines,

handsets, and flash audio players. 1. Flash is becoming ever more pervasive in new markets, and even in more mature markets such as digital cameras, expected to show robust demand during the holiday season. 4. Price elasticity following the dramatically lower pricing this year is expected to drive consumer preference to gigabyte capacities in 2H06. 5. The flash audio player market by itself is projected to consume perhaps as much as 25% of the total industry output of NAND Flash in the last four months of this calendar year. 1. This represents a large increase in flash demand vs. 1H06, and it is likely to have a strong positive impact on the demand side of the equation. 6. Demand for flash in handsets, USB flash drive and cards will likewise continue to consume significant portions of the available flash supply.

7. Industry wise supply will continue to ramp in 2H06 including

the Co.'s ramp, however, the cumulative steep price reduction

for NAND over 1H06 are making allocation of wafer …