investor day february 26, 2010 - …€¢ we believe that growing demand should drive a ... 2009,...

INVESTOR DAY

FEBRUARY 26, 2010

Investor Day | February 26, 2010

AGENDA

ELI HARARIChairman & Chief Executive Officer

SANJAY MEHROTRAPresident & Chief Operating Officer

SHORT BREAK

LUNCH BREAK

SHUKI NIRSenior Vice President & General Manager, Retail Business

JUDY BRUNERExecutive Vice President, Administration &Chief Financial Officer

Q & AELLIOT BROADWINVice President, MNO Solutions

YORAM CEDARExecutive Vice President, OEM & Corporate Engineering

DAN INBARSenior Vice President & General Manager,OEM Mobile & Imaging


FORWARD-LOOKING STATEMENT

During our meeting today we will be making forward-looking statements.

Any statement that refers to expectations, projections or other characterizations of future events or circumstances is a forward-looking statement, including those relating to revenue, pricing, market share, market growth, product sales, industry trends, expenses, gross margin, future memory technology, production capacity and technology transitions and future products.

Actual results may differ materially from those expressed in these forward-looking statements including due to the factors detailed under the caption ―Risk Factors‖ and elsewhere in the documents we file from time-to-time with the SEC, including our annual and quarterly reports.

Reconciliations between Non-GAAP and GAAP results presented are included in the appendix of the financial presentation.

We undertake no obligation to update these forward-looking statements, which speak only as of the date hereof.


ELIHARARIChairman and Chief Executive Officer

INVESTOR DAY MEETINGFebruary 26, 2010


TODAY‘S THEME:

IN THE COMING DECADE, FLASH WILL BE BIGGER THAN YOU THINK!


AGENDA

• 2009 Scorecard

• Past decade

• Technology, Competition, Capacity

• Intellectual Property

• Coming decade

• Summary


SANDISK 2009 SCORECARD

Remarkable turnaround for SanDisk

Our decisive actions brought decisive results

Strong execution in technology (X3, 32nm) and operations

Renewed Samsung license agreement

Exiting 2009 with strong balance sheet

2010 Flash fundamentals as good as ever


DEMAND / SUPPLY GARTNER 4Q09

90%

95%

100%

105%

0

1,000

2,000

3,000

4,000

5,000

6,000

1Q

08

2Q

08

3Q

08

4Q

08

1Q

09

2Q

09

3Q

09

4Q

09

1Q

10

2Q

10

3Q

10

4Q

10

NAND Flash Supply NAND Flash Demand Sufficiency

BIL

LIO

NS

OF

ME

GA

BY

TE

SS

UP

PLY

/DE

MA

ND

SU

FF

ICIE

NC

Y

Short-Term Supply/Demand Sufficiency

2008: 105.0% = Oversupply

2009: 96.0% = Shortage

2010: 98.9% = Shortage

Source: Gartner NAND Flash Memory Supply and Demand, Worldwide, 1Q08-4Q10 (4Q09 Update)


EXPANDING SCALE

IT TOOK US…

15 years (1991–2006) to ship the first 0.5 billion units

3 years (2007–2009) to ship the next 1 billion units

WE EXPECT TO SHIP MORE THAN 1 BILLION UNITS IN THE NEXT TWO YEARS


OUR 1999 PREDICTIONS FOR 2010 CAME TRUE

MarketSize

1999

CONSUMER

PC/SERVER

CONSUMERINDUSTRIAL

PC/SERVER

CD/MD

TAPE

HDD

FLASH

DRAM

SRAM

Capacity Cost

Mechanical Solid State

MarketSize

2010

CONSUMER

PC/SERVER

A/V CONSUMER,WIRELESS,

INTERNET E-COMMERCE PC/SERVER

CD/MD

TAPE

HDDFLASH DRAM

SRAM

Capacity Cost

Source: EH 8-25-99


EVOLUTION OF FLASH MEMORY STORAGE

1990–1999: EARLY DAYS

Industrial, military

Early development of digital film, early PDA‘s

Early web days, DiskonKey (Sneaker-net)

2000–2009: DIGITAL CONSUMER REVOLUTION

Flash: ubiquitous, strategic enabler for portable personal content

Early days of Mobile Internet:

– 3G networks—taking off– iPhone, mobile apps—taking off– Social networking—taking off


SANDISK‘S PAST DECADE: 2 FLASH INDUSTRY CYCLES

10-Yr CAGR (2000-2009): ~22%

Total Revenue 2010 Revenue

+144%-39%

+48%

+99%

+65%

+30%

+41%

+20%

-14%+6%

12% to 23%

$0.0

$0.5

$1.0

$1.5

$2.0

$2.5

$3.0

$3.5

$4.0

$4.5

$5.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E

(BIL

LIO

NS

)


MANAGING THRU DOWN CYCLES: RAPID RECOVERIES

See note on page 203.

2000 excludes gain on investment in foundry.

$0.66

($2.19)

$0.25

$1.02

$1.44

$2.00

$2.51

$1.73

($2.07)

$1.84

($3.00)

($2.00)

($1.00)

$0.00

$1.00

$2.00

$3.00

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Non-GAAP EPS


20% 233% 238% 167% 166%221%

190%

125%

116%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

GIG

AB

YT

ES

SO

LD

SANDISK DEMAND CONTINUED TO GROW STRONGLY THROUGH 2 DOWN CYCLES

Gigabytes Sold (Y/Y Growth Rate)


TECHNOLOGY, COMPETITION


NAND COST REDUCTION TRENDS

2005–2009: 45%-55% annual cost reductions;

SLC MLC (~90% of bits)

200mm 300mm, mega-fabs, automation, immersion lithography

Unprecedented productivity thru rapid technology transitions

2010–2013: 25%-35% annual cost reductions;

MLCX3 (~50% of bits)

NAND technology more challenging at 1x nm, 1y nm

EUV lithography will likely be required below 1x nm


Source: SanDisk estimate 2010; ITRS 2008

MEMORY TECHNOLOGIES‘ COST CURVES

0%

1%

10%

100%

1,000%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Co

st/

GB

($)

co

mp

are

d t

o N

AN

D c

ost

in y

ear

2005

NAND

FeRAM

MRAM

PCM Conservative

3D Optimistic

BICS Optimistic

PCM Optimistic

3D Conservative

BICS Conservative


3D R/W (READ/WRITE) MEMORY—SCALABLE CROSS-POINT DIODE ARRAY

Joint development with Toshiba, now proceeding at Yokkaichi

Making good progress with R/W layer, but not yet ready for production

At x8 equivalent, and given our knowhow in 3D diode arrays, we believe 3D R/W is the most likely successor for NAND in the coming decade: could usher second SSD wave

Source: IEDM 2009 Short Course, ―Low Power Approaches for Memories‖, by A. Nitayama


NAND AND POST-NAND FABS IN COMING DECADE

Existing NAND mega-fabs at 1xnm will be highly depreciated, generating attractive margins and throwing off long tail of cash

New NAND mega-fabs will be pricey (~$8 billion for 200,000 wafers/month), will need to support EUV, will need to adapt to post-NAND technologies production

Industry NAND transition SLCMLC took 3 years (20022005)

Industry transition to post-NAND will be more complex, expect extended period of overlapping NAND and post-NAND designs in production


HOW WE STACK UP AGAINST NAND COMPETITION

• SanDisk Flash Technology/Intellectual Property: – 32nm: leader in X3, industry‘s most cost effective, 2010 work-horse – 24nm: expect to lead with X3: production work-horse in 2011 – X4: shipping products, but limited applications – Systems, Advanced controllers, AFM (Adaptive Flash Management):

uniquely advantaged relative to competition– Security, Content: leadership position– Die stacking: leading 8 die stacking in high volume (microSD™, iNAND™)

• Scale: Great partnership with Toshiba: – Our Fab 3 + Fab 4 deliver ~ 35% of world‘s NAND output

• Flash Storage is really tough to do well. Leadership requires:– Most advanced semi production technology applied on massive scale– Rapid product innovations and strong IP.

• SanDisk: We do Flash right !


INTELLECTUAL PROPERTY: STATUSSAMSUNG CROSS-LICENSE: Seven-year patent cross license renewal with estimated effective

rate of the fixed payments and royalties at approximately 50% of recent effective royalty rate

FLASH MEMORY PORTFOLIO: Wall Street Journal‘s Patent Board Scorecard ranked SanDisk # 2

in 2009 among the semiconductor companies it tracks, up from # 4 in 2008 Licensed to ~85% of NAND industry output

CARDS: SD, microSD now account for~85% (and growing) of all cards

sold—royalties shared with SD 3C (Toshiba, Panasonic, SanDisk)

AS YET UNTAPPED LICENSING POTENTIAL: Extensive Systems/controllers, SSD, Mobile Security (content) Fundamental patents in 3D diode arrays (apply to most 3D

approaches)


OUR FLASH CAPACITY PLANS

• We believe that growing demand should drive a healthy industry-wide supply/demand balance in 2010, likely to continue into 2011

• We are focused on technology upgrades and X3 in Fab 3 and Fab 4

• In 2010/2011 we are planning to acquire our 50% of remaining unused capacity in Fab 4, bringing our captive output to ~2 million 300mm wafers/year. – We will leverage non captive sources when demand exceeds this captive

supply

• We project demand for NAND and 3D R/W to outstrip our captive and non-captive supply sometime in the next few years

• Investment in new captive fab believed premature, will require healthy demand/supply balance and ROIC:– We will evaluate continuously and proceed with caution


GROWTH IN THE COMING DECADE


0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

MIL

LIO

NS

OF

GIG

AB

YT

ES

FLASH MARKETS ARE YOUNG: GROWTH MOSTLY STILL AHEAD

Source: Chart created by SanDisk based on data from Gartner: NAND Flash Memory Supply and Demand, Worldwide,

1Q08–4Q10 (4Q09 Update)

Legacy

Consumer

Mobile

Computing


FLASH IS EVERYWHERE

LEGACY CONSUMER:• Digital cameras• Digital camcorders• GPS• MP3• Gaming• USB Flash drives• e-Books

MOBILE

COMPUTING:• Netbooks, Notebooks, Tablets, MID• Servers, Enterprise

OTHER:• Automotive• Industrial• Medical• Military


iPhone/SmartPhone/Tablet

= New PC

0

200

400

600

800

1,000

1,200

2005 2006 2007 2008 2009E 2010E 2011E 2012E 2013E

An

nu

al

Un

it S

hip

men

ts (

MM

)

Notebook PCs Smartphones Desktop PCs

Notebook PC + Smartphone Shipments Dwarf DesktopConsumers Increasingly Prefer Portability

Unit Shipments of Desktop PCs vs. Notebook PCs + Smartphones, 2005 – 2013E

2006: Inflection Point

Notebook PC + Smartphone

Shipments Broke

Away from Desktop PC

Note: Notebook PCs include Netbooks. Source: IDC, Gartner, Morgan Stanley Research estimates.

Source: December 15, 2009, The Mobile Internet Report, Mary Meeker © 2009 Morgan Stanley


Source: December 15, 2009, The Mobile Internet Report, Mary Meeker © 2009 Morgan Stanley;

DRAMExchange; SanDisk estimates

iPHONE SEMICONDUCTOR CONTENT

$-

$20

$40

$60

$80

$100

$120

$140

$160

$180

2007 iPhone 2.5G4, 8, 16 GB

2008 iPhone 3G8, 16 GB

2009 iPhone 3GS16, 32 GB

NAND LCD Baseband AP Camera Module DRAM Wifi RF


FLASH SSD: MASSIVE MARKET IN COMING DECADE

• SSD adoption still in early stages: expect market acceleration in 2011 with 2x nm NAND, tipping point reached with1x nm NAND

• SSD will come in all kinds of form-factors (e.g. thin), optimized for specific usage models, fostering new architectures/innovation

• SSD price elasticity will serve to correct industry excess supply

• We see SSD as playing to our strengths in Systems, IP and captive supply, and expect to be a long term SSD participant

Note: Apple iTunes yet to offer full length media streaming. Source: Company websites.

Connectivity = Cloud ComputingConsumers Expect to Get Their Stuff 24x7 from Palms of Their Hands

Music

in the Cloud

Video

in the CloudApps / Documents

in the Cloud

Photos

in the Cloud

Professional Content

Leading repository TBD

Apple iTunes? Amazon.com?

Netflix? Hulu? Spotify?

User Generated Content

Facebook is the leading

repository for user-generated

photos / videos / comments /

links to music / social games

Unified Digital

Locker

Shopping / Stuff

in the Cloud

Source: December 15, 2009, The Mobile Internet Report, Mary Meeker © 2009 Morgan Stanley

http://www.amazon.com/gp/video/help/faq.html?pf_rd_p=485232071&pf_rd_s=center-1&pf_rd_t=101&pf_rd_i=16261631&pf_rd_m=ATVPDKIKX0DER&pf_rd_r=0HNMJVRK6EFFC7P7X3BR

http://www.pandora.com/

http://cdn.last.fm/flatness/badges/lastfm_red.gif


SUMMARY: FLASH IS EVERYWHERE, WILL BE BIGGER THAN YOU THINK!

• FLASH UBIQUITOUS, AND GROWING

• SMARTPHONE = ―NEW PC‖ FLASH SSD

• ―MOBILE INTERNET IN EARLY INNINGS, WILL BE BIGGER THAN YOU THINK‖ (Morgan Stanley*)

• CLOUD COMPUTING: LAST NODE ON NETWORK, IN YOUR POCKET

• HIGHLY SCALED FLASH GETTING HARD TO DO WELL, SYSTEM SOLUTIONS BECOMING KEY PLAYING TO OUR STRENGTHS

Source: December 15, 2009, The Mobile Internet Report Mary Meeker © 2009 Morgan Stanley


SANJAY MEHROTRAPresident & Chief Operating Officer

WELL POSITIONED FOR PROFITABLE GROWTH


AGENDA

• Market Opportunities and Innovation

• Leadership in Technology and Cost

• Scalable Operations, Solid Execution

SanDisk well positioned in all these areas due to its Vertically Integrated Structure and Diversified OEM/Retail Businesses


• Expanded OEM channels and customers

• Diversified memory products

• Expanded global reach in OEM and Retail

SANDISK PRODUCT REVENUE MIX

2009 STRATEGIC SHIFT:Created New Growth Opportunities in Both OEM and Retail

2009 2008

OEM

36%

Retail

64%

OEM

50%

Retail

50%


GLOBAL REACH STRONGER THAN EVER

Bell World

Best Buy

Costco

CVS

Future Shop

GameStop

K-Mart

Meijer/Food

Office Depot

OfficeMax

Sears

Sprint

Staples

Verizon

Walgreen’s

Walmart

Carrefour

Casa Bahia

Extra

FNAC

Musimundo

Sanborns

Ripley

Walmart

Carphone Warehouse

Carrefour

Comet

Dixons

FNAC

Jessops

Orange

MediaMarkt

Ringfoto

Saturn

Tesco

Walmart

Amazon

BIC

Edion

K’s

Kitamura

Kojima

Matsukiyo

Yamada

Yodobashi

Japan

N. America

Bing Lee

Broadway

Citicall

Focus

Fortress

Jumbo

Lotte

MIcroMax

Noel Leeming

OfficeWorks

Reliance

Tesco Lotus

• 242,000 storefronts world wide (Retail)

• 5 of top 10 customers in 2009 were Global Handset Manufacturers (OEMs)

• Increasing revenue contribution from emerging markets

Latin

America

Asia/

Pac Rim

Europe


0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

WE ARE IN THE EARLY STAGES OF FLASH IN MOBILE AND COMPUTING MEGA-MARKETS

MIL

LIO

NS

OF

GIG

AB

YT

ES

76 Billion GB

Source: Gartner: ―4Q09 NAND & SSD Update: Enabling Products or Enabling Profits?‖ (November 2009)

2008-2013, 5-Yr CAGR: 74%

Mobile

Computing

20 Million GB

Other Automotive Computing Gaming Mobile Phone

Camcorder USB Drive Media Player Digital Camera


MOBILE: SANDISK‘S PRIMARY GROWTH DRIVER

END MARKET 2006 2007 2008 2009

Mobile 25% 35% 34% 41%

Imaging 37% 26% 25% 24%

USB 14% 14% 13% 13%

Other Markets 14% 13% 14% 10%

License & Royalty 10% 12% 15% 12%

TOTAL REVENUE 100% 100% 100% 100%


SMARTPHONES: CATALYST FOR GROWTH IN MOBILE FLASH DEMAND

Source: SanDisk, based on data from Gartner, Strategy Analytics and iSuppli.

Annual Smartphone Sales expected to double in the

next 4 years

0

200

400

600

800

1000

1200

1400

1600

1800

2009 2010 2011 2012 2013

M U

NIT

S

Smartphones Average Feature Phones Average Basic Phones Average


SANDISK MOBILE POINTS OF ENGAGEMENT: BEST IN THE INDUSTRY

Handset

Vendor

Network

Operator

Global

Retail

Embedded Bundled Bundled AftermarketAftermarket


SOLID STATE DRIVE: A LARGE EMERGING DEMAND DRIVER

SSD adoption expected to pick up in 2010, accelerate in 2011

Gartner projects SSD to approach 20% of NAND bits shipped in 2012

Notebooks: Price/Performance key trigger point

Flash uniquely enables exciting new devices– Netbooks, Tablets, others– Smartphone as a PC– Thin Form Factor, Low Power, High Performance


INNOVATION


SANDISK INNOVATION FOCUS AREAS

• Mobile Embedded Applications

• Mobile Network Operator Service Discovery Cards

• Solid State Drives

• Leveraging Technology and System Expertise Across the Entire SanDisk Product Portfolio


PIONEERING NEW MOBILE EMBEDDED SOLUTIONS

TimeMLC X3

Application

Requirements

Raw Flash

Capability


PIONEERING NEW MOBILE EMBEDDED SOLUTIONS

TimeMLC X3

Application

Requirements

Raw Flash

Capability

Adaptive Flash Management (AFM) — bridging the gapSanDisk pioneers


PARTNERING WITH MOBILE NETWORK OPERATORS: SERVICE DISCOVERY CARDS

Historically, carriers have viewed the microSD™ cards as an extension of the phone—like a Bluetooth earpiece.

The Mobile Internet explosion is forcing carriers to find economical solutions to grow their service offerings

SanDisk’s Service Discovery Cards (SDC) leverage unique capabilities (streaming, caching, encrypting) enabled by our system, to act as anextension of the network.


SANDISK SSD INNOVATION FOCUS

SanDisk expects to be a significant participant in the SSD market

Evolving Product lineup – 2009 SanDisk® pSSD (MLC) for Netbooks

– 2010 SanDisk® G3 SSD (MLC) product launch

– 2011 Targeting innovative, next generation products for Notebook, Netbook, Tablet and Smartphone markets


LEVERAGING TECHNOLOGYAND SYSTEM EXPERTISE

SANDISK EXTREME®

SANDISK EXTREME® PRO™

Up to 90MB/sec

SANDISK ULTRA®

Up to 15MB/sec

BLUEX3, X4

X2, X3

X2

High Performance, High Capacity, Low Cost

EMBEDDEDX2, X3


AGENDA





SANDISK-TOSHIBA PARTNERSHIP BUILDING ON 10 YEARS OF NAND COLLABORATION

8 Generations of MLC & 3 Generations of X3 Developed Jointly Over 10 Years

R&D Collaboration and Cost Sharing– NAND and 3D Read/Write

2 Existing Flash Manufacturing Joint Ventures in Fab 3 and Fab 4

SanDisk and Toshiba Combined 300mm NAND Capacity > 4 Mil Wafers/year– Our cost benefits capture the full scale of production in Fab 3 and Fab 4


X3 IS EXTREMELY VALUABLE…

Significantly increases Gigabytes/wafer

– SNDK 32nm, 32Gb X2 140 mm2

– SNDK 32nm, 32Gb X3 113 mm2

Substantially Lowers Cost without any additional Capital

Investment or Process Complexity

Pricing competitive to X2: Expands Gross Margin and Improves

Return on Invested Capital

X3 ~20% more Gigabytes/wafer


…IF YOU CAN DEPLOY IT

0%

10%

20%

30%

40%

50%

60%

4Q09

Source: Gartner: 4Q09 NAND & SSD Update: ―Enabling Products or Enabling Profits?" November 2009

ESTIMATED X3 MIX OF FAB BIT OUTPUT (GARTNER DATA)

System Expertise

is key to enabling

high X3 production mix

SanDisk Toshiba Samsung Micron Hynix


SANDISK UTILIZING X3 IN ALL MAJOR END MARKETS

Products utilizing X3

Mobile: microSD, M2, iNAND

Imaging: SD, MS Pro Duo

Q409 END MARKET SALES UTILIZING X3

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Mobile Imaging USB

% of GB sold


2008 2009 2010 2011 2012 2013

256G

128G

64G

32G

16G

8G

4G

SANDISK NAND ROADMAP

43nmX2, X3

43nm

X2, X3

43nm

X4

32nm

X2, X3

32nm

X3

24nm

X2, X3

24nm

X3

1xnm

X2, X3


CONTINUED RAPID TECHNOLOGY TRANSITIONS

Source: SanDisk.

TECHNOLOGY TRANSITION FOR TOTAL CAPTIVE WAFER OUTPUT—% OF GB

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2006 2007 2008 2009 2010

90 nm 70 nm 56 nm 43 nm 32 nm 24 nm90 nm 70 nm 56 nm 43 nm 32 nm 24 nm


5TH CONSECUTIVE YEAR OF > 50% COST REDUCTION(1)

COST/GB REDUCTION

MEMORY

(Includes 1H09 Fab underutilization)

NON-MEMORY

0%

10%

20%

30%

40%

50%

60%

2005 2006 2007 2008 2009

Technology Transitions

Increased Mix of X3/X4

Economies of Scale and

Productivity Improvements

1 See note on Page 198

Total Cost Reduction Memory Non-Memory


2008 2009

Co

st p

er

Un

it

NON-MEMORY COSTS DECLINED EVEN FASTER THAN MEMORY COSTS(1)

ex: 4GB MICROSD™ CARD

-52%

77%

80%

Memory Controller Assy/Test Other

1 See note on Page 198


2010 COST REDUCTION OUTLOOK

Cost/GB reduction expected to be in the range of 30-40%

X3 expected to be > 50% of fab bit output

Key Cost Reduction Drivers: – 32nm expected to be > 70% of fab bit output– Continued non-memory cost reduction


AGENDA





0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

2004 2005 2006 2007 2008 2009 2010

MIL

LIO

NS

OF

UN

ITS

SO

LD

PE

R D

AY

SANDISK SCALE APPROACHING 1.5 MILLION UNITS PER DAY

Source: SanDisk.

~ 500M units/ year


JOINT VENTURE FABS: INDUSTRY LEADING SCALE AND EFFICIENCY

SanDisk 2009

• ~1.5 Million 300 mm wafers output (SanDisk)– returned to 100% Utilization in 2nd Half

Bit output growth ~38%

– includes JV restructuring

– 43nm >90% Bit production

– X3/X4 ~50% of Bit production

Source: SanDisk.

.

Yokkaichi, Japan


2010: SUPPLY GROWTH ALIGNED WITH DEMAND

MEMORY SUPPLY PLANS

Captive bit output growth expected to be at or below 70%– Growth mostly expected from 32nm transition– In 2H 2010, expect to add ~10% wafer capacity to JVs by expanding

in unused Fab 4 clean room space

DEMAND EXPECTATIONS

Bit demand growth expected to be greater than 70%

END MARKET SHARE

Expect to maintain or grow market share through improved inventory management and potentially non-captive purchases


SANDISK SHANGHAI ASSEMBLY/TEST FACILITY: ANOTHER COMPETITIVE ADVANTAGE

Key advantages: cost, cycle time, multi-die capability

Source: SanDisk.

.

2007 UNIT PRODUCTION

Sub-Contract

Partners

2009 UNIT PRODUCTION

SanDisk

Sub-Contract

Partners


TO

TA

L M

EM

OR

Y U

NIT

S S

OL

D

RECORD 2H09 UNIT SALES: OUTSTANDING EXECUTION

Enabled by Flexible

and Scalable

Supply Chain


Retail OEM Technology OperationsFab

FOCUSED ORGANIZATION, VERTICAL INTEGRATION STRATEGY

EXECUTION

Market Opportunities Cost Effectiveness Scale


SUMMARY

Strong Demand Ahead

Spurring Growth through both OEM and Retail Businesses

Building on core competencies

– Product Innovation

– Technology Leadership

– High Volume Operations

Solid track record of execution

SanDisk Best Positioned to

Drive Future Growth


SANDISK 2010 INVESTOR DAY MEETING

We are taking a short break.

The Investor Day Meeting will resume shortly.


YORAMCEDARExecutive Vice President, OEM & Corporate Engineering


OEM offers tremendous growth

opportunities which SanDisk is

uniquely positioned to exploit.


SANDISK‘S OEM PORTFOLIO

MOBILEIMAGING & GAMING COMPUTING

PRIVATE LABEL & COMPONENT BUSINESS


SANDISK‘S 2009 OEM REVENUE MIX

Grew from ~$1.0B in 2008

to ~$1.5B in 2009 with strong

growth in units and PBs

Mobile Handset Vendors

52%

Computing5%

Imaging & Gaming12%

Private Label Cards & Components

13%

Mobile Network Operators

18%




52%

Computing5%

Imaging & Gaming12%


13%


18%


IMAGING & GAMING

SLR HD VIDEO ON SD


IMAGING & GAMING

SLR HD VIDEO ON SD MOBILE GAMING PMP

16 – 32 – 64GB+




52%

Computing5%

Imaging & Gaming12%


13%


18%


PRIVATE LABEL AND COMPONENT BUSINESS

In 2009, SanDisk introduced a new business...

…it represented 13% of our OEM business in 2009.




52%

Computing5%

Imaging & Gaming12%


13%


18%


0

200

400

600

800

1,000

1,200

1,400

1,600

2007 2008 2009 2010 2011 2012 2013

total handsets handsets w. card slot

MOBILE STORAGE GROWTH

Source: Wireless Device Strategies Service, Strategy Analytics, February 2010

SHIPMENTS OF ALL HANDSETS, SLOTTED HANDSETS, EMBEDDED NAND, CARD SLOTS – M UNITS


0

200

400

600

800

1,000

1,200

1,400

1,600

2007 2008 2009 2010 2011 2012 2013

mobile cards total handsets handsets w. card slot

SHIPMENTS OF ALL HANDSETS, SLOTTED HANDSETS, EMBEDDED NAND, CARD SLOTS - M UNITS




0

200

400

600

800

1,000

1,200

1,400

1,600

2007 2008 2009 2010 2011 2012 2013

mobile cards embedded flash 1GB+ total handsets handsets w. card slot

SHIPMENTS OF ALL HANDSETS, SLOTTED HANDSETS, EMBEDDED NAND, CARD SLOTS - M UNITS






52%

Computing5%

Imaging & Gaming12%


13%


18%


YOU CAN NEVER BE TOO THIN...

0.41” thick

4.9 oz

$1.50/GB

IPOD CLASSIC - HDD

0.24” thick

1.3 oz

$11.00/GB

IPOD NANO - NAND

Source: Apple, Feb 2010


1.1” thick 2.5 lbs

$1.85/GB

DELL MINI 10 - HDD

0.55” thick1.3 lbs

$21.00/GB

SONY VAIO X - SSD

YOU CAN NEVER BE TOO THIN...

Half as thickHalf as heavy10x the value

Thin is In

Source: Dell, Sony, Feb 2010


PERFORMANCE & MODULAR SSD

Modular SSD - pSSD Performance SSD - G3

Smaller and lower cost than an HDD Faster and more reliable than an HDD

Netbooks Smartbooks

Tablets

Notebooks Desktops

Servers


-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

2007 2008 2009 2010 2011 2012 2013

DE

MA

ND

(P

B)

SSD: GROWTH IS JUST STARTING

Source: Gartner: Semiconductor Forecast Database, 4Q09

Performance

SSD

Modular

SSD

Enterprise


8 of the 10Top Netbook MakersUse SanDisk Modular SSD

Revenue basis, Source: SanDisk Market Research


OEM offers tremendous growth

opportunities which SanDisk is

uniquely positioned to exploit.


SYSTEM DESIGN AT SANDISK‘S CORE

WORLD CLASS

Cutting-edge, capital-intensive

wafer fabs

WORLD CLASS

Responsive distribution: lean supply

chains and global footprints

Memory

Fabrication

Memory

Design

System

Design

System

Assembly &

Logistics

Retail

& OEM

SANDISK‘S CORE

More bits, more performance and

ultimately more revenue ($$) per wafer


SANDISK DRIVES EVOLUTION OF LEADING FLASH FORMATS

• Standardization → Market Expansion

• Market Expansion → Volume

UFD

mDOC

miniSD™

microSD™

SD™

MMC™

CF®

Memory

Stick

PRO™

iNAND

SDC

PC Card

iNAND → focus is on enabling embedded X3

SDC → ―More than memory‖— service discovery card


SANDISK DRIVES EVOLUTION OF LEADING FLASH FORMATS

• Standardization → Market Expansion

• Market Expansion → Volume

UFD

mDOC

miniSD™

microSD™

SD™

MMC™

CF®

Memory

Stick

PRO™

iNAND

SDC

PC Card

iNAND → Focus is on enabling embedded X3

SDC → ―More than memory‖— service discovery card

0

200

400

600

800

2004 2005 2006 2007 2008 2009 2010

Slo

tted

Han

dsets

(M

)


Investor Day | February 26, 2010SanDisk Confidential

Application

Target Specs

APPLICATION-ADAPTIVE FLASH MANAGEMENT

Raw NAND

Capabilities

Investor Day | February 26, 2010SanDisk Confidential

Application

Target Specs

APPLICATION-ADAPTIVE FLASH MANAGEMENT

Raw NAND

Capabilities

Adaptive Flash

Management


THE KEY TO X3 IS ADOPTION

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Time from Introduction to 50% bit share

X2 MLC

X2

SanDisk Rest of Industry 50% Adoption

Source: Internal Estimates, Gartner: NAND Flash Memory Supply and

Demand, Worldwide, 1Q08–4Q10 (4Q09 Update)


THE KEY TO X3 IS ADOPTIONTime from Introduction to 50% bit share

?X3

X3

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

X2 MLC

X2





THE KEY TO X3 IS ADOPTIONTime from Introduction to 50% bit share




0%

10%

20%

30%

40%

50%

2008 2009 2010

x3

PB

%

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

X2 MLC

X2

?X3

X3




52%

Computing5%

Imaging & Gaming12%


13%


18%

Grew from ~$1.0B in 2008

to ~$1.5B in 2009 with strong

growth in units and PBs


DAN INBARSenior Vice President & General Manager,OEM Mobile & Imaging


Removable Card

Embedded Storage– User storage– Mobile system/boot

code

STORAGE FOR MOBILERemovable and Embedded MLC NAND Based Devices


Advanced process (X3)

Advanced technology/innovation

Cost Leadership

User Experience

STORAGE FOR MOBILESanDisk broad mobile understanding creates synergy between our product line


NOREM

BE

DD

ED

TE

CH

NO

LO

GY

AD

VA

NC

ES

Embedded Market2009

EMBEDDED MANAGED NAND• SanDisk has been constantly driving the industry to

managed NAND architecture


NOR

SLC

EM

BE

DD

ED

TE

CH

NO

LO

GY

AD

VA

NC

ES

Embedded Market2009




NOR

SLC

MLC

EM

BE

DD

ED

TE

CH

NO

LO

GY

AD

VA

NC

ES

Embedded Market2009



MLC

Boot


NOR

SLC

MLC

MLC

Boot

X3

EM

BE

DD

ED

TE

CH

NO

LO

GY

AD

VA

NC

ES

Embedded Market2009




SANDISK ADVANCED TECHNOLOGYUnleash the Full Potential of Embedded Managed NAND



Market Requirement



Market Requirement

43nm X2



Market Requirement

43nm X2

32nm X2



Market Requirement

43nm X2

32nm X2

32nm X3



Smart

Caching

Smart

Caching

Market Requirement

43nm X2

32nm X2

32nm X3



SLC

Emulation

Smart

Caching

Smart

Caching

Market Requirement

43nm X2

32nm X2

32nm X3



SLC

Emulation

Smart

Caching

High Performance Mode

Smart

Caching

Market Requirement

43nm X2

32nm X2

32nm X3



SLC

Emulation

Smart

Caching

Smart

Caching

Market Requirement

43nm X2

32nm X2

32nm X3

Adaptive Flash

Management (AFM) –Bridging the Gap




SLC

Emulation

Smart

Caching

Smart

Caching

Market Requirement

43nm X2

32nm X2

32nm X3

32nm X3 + AFM

Adaptive Flash





SLC

Emulation

Smart

Caching

Smart

Caching

Market Requirement

43nm X2

32nm X2

32nm X3

32nm X3 + AFM

Adaptive Flash


Leveraging X3 in

Embedded requires

advanced system

technology



CACHE• High random

performance• High endurance

OPTIMIZED FOR MOBILE SYSTEM• Boot code and user storage in a single device• Design based on actual handset usage modeling• Enhanced system responsiveness – e.MMC 4.41

USER AREA• High capacity mass storage• 3-bits per cell (X3)

CODE AREA• Boot and code storage• High performance• Highly reliable

SMART MEMORY FOR SMART PHONES

Investor Day | February 26, 2010 118

* Source: Strategy Analytics (Feb 4, 2010), embedded handsets data relates to 1GB and above

SANDISK IS GROWING EVEN FASTER THAN THE MARKET

MOBILE EMBEDDED MARKET GROWTH• Expected consistent growth in embedded MLC TAM—fueled by the high-

end segment growth

Handsets with Embedded MLC

% of total handsets

0

100

200

300

400

500

600

700

800

2009 2010 2011 2012

Mu


PORTABLE NAVIGATION DEVICES

PORTABLE MEDIA PLAYERS

DVC

eREADERS

SMARTBOOKS/TABLETS

NETBOOKS

OTHER EMBEDDED OPPORTUNITIES

GAMING


• Embedded high capacity is a significant

opportunity

• It requires special smart, adaptive Flash

• SanDisk is well positioned for success

SUMMARY


THANK YOU


Vice President, MNO Solutions

MOBILE NETWORK OPERATORS

ELLIOTBROADWIN


WHY OPERATORS?

• $1,000,000,000,000

• 4,600,000,000 subscriptions

• Highly concentrated

Source: Strategy Analytics, May 2009

Page 123 Investor Day | February 26, 2010

http://en.wikipedia.org/wiki/File:Chinamobile.png

http://en.wikipedia.org/wiki/File:Vodafone_logo.svg

http://en.wikipedia.org/wiki/File:America_Movil1.svg

http://en.wikipedia.org/wiki/File:China_Unicom.png

http://en.wikipedia.org/wiki/File:Deutsche_Telekom.svg

http://en.wikipedia.org/wiki/File:Bharti_Airtel_Logo.svg

http://en.wikipedia.org/wiki/File:MTS_logo.svg

http://en.wikipedia.org/wiki/File:Telenor.svg

http://info.singtel.com/

http://upload.wikimedia.org/wikipedia/en/3/3f/Telecom_Italia.svg

http://en.wikipedia.org/wiki/File:TeliaSonera_logo.svg

http://en.wikipedia.org/wiki/File:NTT_DoCoMo_logo_2008.svg


9 of the top 10Mobile Network Operators

Buy SanDiskSource: Operator ranking according to Strategy Analytics, January 10, 2010



‗iPHONE‘ CHANGES EVERYTHING

Two dramatic threats to carriers…

…which Flash can

significantly address…

…and SanDisk is uniquely

equipped to deliver



STRATEGIC PAIN-POINTS

THE CLOGGED PIPE DILEMMA

―Watching a YouTube video on a

smartphone can be equivalent to

sending 500,000 text messages

simultaneously.‖ (O2‘s CTO Derek McManus)

Thanks a billion

THE DUMB PIPE DILEMMA



STRATEGIC PAIN-POINTS



WHAT CAN FLASH DO TO HELP?



TIME & PLACE SHIFTING



Mobile

Data(Off peak)

WiFi(home)

Mobile Data(Peak)

Local

Flash

Memory

Cache

SHIFTING TIME AND PLACE IN A FLASH

Illustrative Data

Pre-

Loading

Ban

dw

idth

Fri

en

dly

Availability(everywhere, all the time)



CASE STUDY: SDC & MUSIC



STORAGE MAKES THE PIPE SMARTER

Early broadband networks relied on ―big iron‖ in

large Network Operations Centers



CDNs moved content closer to ‖the edge‖ to

speed delivery and improve the user

experience



Today‘s wireless networks are facing similar

―last mile‖ issues


THE LAST NODE ON THE NETWORK

SanDisk storage and network intelligence can optimize network

traffic to deliver the best end user experience


UNIQUELY SANDISK

Hardware:Trusted Flash

Firmware:Hidden

Partitions & Caplets

Software:Mobile Apps.

Servers:RT, M2M with

content owners

Content Licensing



THANK YOU



SANDISK 2010 INVESTOR DAY MEETING

We are taking a short lunch break.

The Investor Day Meeting will resume shortly.


SHUKINIRSenior Vice President & General Manager, Retail Business

SANDISK RETAIL: LEADERSHIP WITH A PREMIUM


AGENDA

• The strength of our retail position

• The superiority of our brand and how we are going to continue building it

• How our retail business will grow over the next several years


THE STRENGTH OF SANDISK RETAIL


0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

2008

-10

2008

-11

2008

-12

2009

-01

2009

-02

2009

-03

2009

-04

2009

-05

2009

-06

2009

-07

2009

-08

2009

-09

2009

-10

2009

-11

2009

-12

SanDisk

Source: NPD Market Tracker, December 2009

U.S.

A CLEAR #1 IN MARKET SHARE

The total market is made up of Flash cards and USB Flash drives.


0%

5%

10%

15%

20%

25%

30%

35%

2008

-10

2008

-11

2008

-12

2009

-01

2009

-02

2009

-03

2009

-04

2009

-05

2009

-06

2009

-07

2009

-08

2009

-09

2009

-10

2009

-11

2009

-12

SANDISKSource: Gfk Europe, December 2009

EMEA






Source: Gfk Japan, December 2009

JAPAN

0%

5%

10%

15%

20%

25%

2008

-10

2008

-11

2008

-12

2009

-01

2009

-02

2009

-03

2009

-04

2009

-05

2009

-06

2009

-07

2009

-08

2009

-09

2009

-10

2009

-11

2009

-12

SanDisk




APAC

Source: Gfk Asia, December 2009


0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

Average 2008-2009

PR

ICE

PR

EM

IUM

A CLEAR PREMIUM OVER COMPETITION

APAC EMEA JAPAN U.S.

Source: NPD and GFK, 2009. SD 2GB selling prices


DIGITAL IMAGING & VIDEO DIVERSE MARKET SEGMENTS

BROADEST PRODUCT LINE

MOBILE

ULTRA

EXTREME PRO

EXTREME

AUDIO/VIDEOGAMING

STANDARD

COMPUTING


ADDRESSING CONSUMER SEGMENTS—IMAGING


ADDRESSING CONSUMER SEGMENT—IMAGING

Basic Point & Shoot

Everyday Consumer

Featured-Rich Point & Shoot

High Megapixel

High Def Movie

High

End

Pro DSLR

Prosumer

DSLR

Entry

DSLR


SEGMENTATION PAYS OFF

30%

70%

Retail Imaging Revenue Units 2009

55%

45%

Margin $ From Retail Imaging 2009

High Performance Standard


ADDRESSING CONSUMER NEEDS—COMPUTING

Here‘s how:

SanDisk Ultra® Backup USB Flash Drive

• The first to add a simple customer backup* button to the USB Flash Drive

• Adding Mac OS support to transfer data between computers

• Always have your valuable files with you in a portable, rugged solution

Note: Backup function currently works only with Windows operating system


ADDRESSING CONSUMER NEEDS—COMPUTING

Here‘s how:

SanDisk® G3 SSD

• A true HDD replacement that provides better computing performance

• Highly reliable with long-term data endurance


ADDRESSING CONSUMER USE CASES—MOBILE



Here‘s how:

SanDisk® Media Manager Application

• Take the guess work out of transferring files to your phone

• Easily find and browse all your music and photos on your PC



Here‘s how:

slotRadio+

• Most provide 1,000 songs + 4GB free memory space to store your own content

• Phone application for music playback and discovery of the different card genres

Billboard Decades

Handcrafted Playlists

Billboard Hits

Handcrafted Playlists


SanDisk is the premium brand in memory cards in retail


SANDISK RECOGNIZED AS LEADER BY CONSUMERS

Source: Imaging Cards in US Retail, an In-Store Market Research

by BrandTruth Marketplace Intelligence Services, 2009

79% of Shoppers answered SanDisk first

2% of Shoppers mentioned some other memory card brand first

19% of Shoppers related that they were not sure/didn‘t know


SANDISK RECOGNIZED AS LEADER BY STORE ASSOCIATES AS WELL

87% of associates

recommended SanDisk first

6% of associates recommended some

other memory card brand first

7% of associates related that they

were not sure/didn‘t know

Source: Imaging Cards in US Retail, an In-Store Market Research

by BrandTruth Marketplace Intelligence Services, 2009


SANDISK BRAND ―OWNS‖ THE LAST 10 FEET


WALMART—USA


ELDORADO—MOSCOW, RUSSIA


BIC YURAKUCHO—JAPAN


EZONE, STAPLES & JUMBO—INDIA


UNIEURO—ITALY


VARIOUS RETAILERS—ARGENTINA


February 25, 2010

SHARAF DG—DUBAI, UAE


BESTBUY—XUJIAHUI, CHINA


STATION OUTSIDE BIC YURAKUCHO—JAPAN


OFFICE DEPOT—USA


DIXONS—HEATHROW AIRPORT, UK


IT MALL ROADSHOW—CHINA


SATURN—PARIS, FRANCE


February 25, 2010

EMAX—DUBAI, UAE


25 February 2010

MEDIAMARKT—GERMANY


TAOYUAN AIRPORT DFS—TAIWAN


PHOTO SPECIALTY CHANNEL—NY


ELIFE—SINGAPORE


MTR STATION—HONG KONG


HUB STATIONS—TOKYO, JAPAN


In More than 242,000 Stores

SANDISK BRAND ―OWNS‖ THE LAST 10 FEET


SanDisk retail business will continue to grow in the coming years


IMAGING MARKET PROJECTED TO GROW FURTHER

Source: Chart created by SanDisk based on data from iSuppli, data flash Q4 Market Tracker, 1209, and Gartner Flash Card Forecast 11/09

• Most new camcorders using flash

• Most new digital cameras have an HD-Video function


USB MARKET PROJECTED TO GROW FURTHER


• Ubiquity of USB Ports

• Additional use cases


STRONG MOBILE END MARKET GROWTH PROJECTED


• More smart phones

• Greater need for storage on mobile phones


KEYS TO SUCCESS IN BRIC

Local teams have the responsibility, budgets and accountability

Business model adjusted to the local competitive landscape



Products designed for the specific market needs



Marketing campaigns to enhance brand awareness and premium

CHINA INDIA


SUMMARY

SanDisk Retail is uniquely positioned with – Clear market share leadership– Clear price premium– Broadest product line targeted at specific consumer segments

The superiority of our brand– Has been built in the last 10 feet– Has leveraged the innovative and differentiated products coming

from SanDisk– Will continue to leverage on in-store presence

Our retail business will grow over the next several years through– Continuous growth of imaging and computing– Substantial growth in mobile– Increasing our share in BRIC


JUDYBRUNERExecutive Vice President, Administration and Chief Financial Officer

FINANCIAL REVIEW


FINANCIAL REVIEW: A PATH TO A PROMISING FUTURE

• Growth and Earnings Power Return

• Balancing Growth, Profits and Cash Flow


DECISIVE ACTIONS AND STRONG EXECUTION

• Sold ~20% captive capacity to Toshiba

Balanced supply/demand & strengthened financial position

• Reduced 1H09 fab utilization by >20% and stopped wafer capacity expansion

Contributed to pricing recovery

• Streamlined into OEM/Retail units

Significantly reduced opex

• Channel diversification

2H09 OEM 56% of product revenue

• Strong execution in technology and operations

Continued product cost leadership

• Renewed Samsung license agreement

• Negotiated non-captive supply agreements

• Filed & received tax refund


200920082007200620052004

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

REVENUE RECOVERS RAPIDLY IN 2009• GBs sold up 116% Y/Y

• ASP/GB down 48% Y/Y

$1.8B65% Growth

$2.3B30% Growth

$3.3B41% Growth

$3.9B20% Growth

$3.3B14% Decline

$3.6B6% Growth

Q409

Revenue

$1.24B

+44% Y/Y

+33% Q/Q

License/Royalty Product

Memory Unit

Growth by year 51% 24% 108% 75% 15% 26%


BY END MARKET, MOBILE & IMAGING WERE THE PRIMARY DRIVERS OF PRODUCT REVENUE GROWTH IN 2009

$0

$100

$200

$300

$400

$500

$600

$700

Q108 Q208 Q308 Q408 Q109 Q209 Q309 Q409

RE

VE

NU

E IN

MIL

LIO

NS

Mobile Imaging USB AV & Gaming Other Markets


$0

$100

$200

$300

$400

$500

$600

$700

Q108 Q208 Q308 Q408 Q109 Q209 Q309 Q409

RE

VE

NU

E IN

MIL

LIO

NS

BY CHANNEL, OEM DROVE PRODUCT REVENUE GROWTH IN 2009

OEM Retail


2006 2007 2008 2009

UN

IT S

AL

ES

IN M

ILL

ION

S

Americas EMEA APAC

RETAIL DEMAND STRONG IN APAC; OPPORTUNITY REMAINS FOR RETAIL RECOVERY IN AMERICAS/EMEA


-35%

-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

2005 2006 2007 2008 2009

SN

DK

Q/Q

AS

P/G

B C

HA

NG

E

SIGNIFICANT CHANGE IN PRICING TRENDS IN 2009

Q1 Q2 Q3 Q4

• SANDISK ASP/GB EXITS 2009 ABOVE Q109 LEVEL


-52%

-58%

-60%

-62%

-48%

-54%

-55% -55% -55%

-52%

-65%

-60%

-55%

-50%

-45%

2005 2006 2007 2008 2009

COST REDUCTION EXCEEDS PRICE DECLINE IN 2009, LEADING TO IMPROVED GROSS MARGINS

Change in Underlying Cost/GB (1)Change in ASB/GB

(1) Underlying Cost/GB is calculated using Non-GAAP Cost of Sales, adjusted as follows:2008: excludes inventory reserves, fab impairment charges, and accruals for 2009 fab underutilization2009: excludes inventory reserve benefits, and includes all costs for 2009 fab underutilization


45%

36%

-80%

-60%

-40%

-20%

0%

20%

40%

60%

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

PRODUCT GROSS MARGINRETURNS TO HISTORIC HIGHS BY Q409

(1) 2006 - 2009 Product GM% is Non-GAAP excluding stock comp expense, amortization of acquisition-related intangible assets, and purchase accounting adjustments.

(2) Underlying Product GM% is calculated using Non-GAAP Cost of Sales, adjusted as follows:

2008: excludes inventory reserves, fab impairment charges, and accruals for 2009 fab underutilization

2009: excludes inventory reserve benefits, and includes all costs for 2009 fab underutilization

2005 2006 2007 2008 2009

Product GM % (1) Underlying Product GM % (2)


OPERATING EXPENSES REDUCED 25% FROM 2008 TO 2009

(1) 2006–2009 is Non-GAAP Operating Expense excluding stock comp expense, amortization of acquisition-related intangible assets,

purchase accounting adjustments, and impairments of goodwill and acquisition-related intangible assets.

$396

$577

$783

$911

$681

0%

5%

10%

15%

20%

25%

30%

$0

$100

$200

$300

$400

$500

$600

$700

$800

$900

$1,000

2005 2006 2007 2008 2009

OP

ER

AT

ING

EX

PE

NS

ES

, % O

F T

OT

AL

RE

VE

NU

EO

PE

RA

TIN

G E

XP

EN

SE

S I

N M

ILL

ION

S

Operating Expenses (1) Operating Expense as a % of Revenues


2005

―$577―

2007

―$507―

2006

―$685―

2008

―($783)―

2009

―$629―

REPORTED OPERATING MARGIN(1)

REACHES RECORD IN Q409

(1) 2006–2009 is Non-GAAP Operating Margin excluding stock comp expense, amortization of acquisition-related intangible assets,

purchase accounting adjustments, and impairments of goodwill and acquisition-related intangible assets.

$ IN

MIL

LIO

NS

% R

EV

EN

UE

Operating Margin as a % of Total Revenue

($800)

($600)

($400)

($200)

$0

$200

$400

$600

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

-80%

-60%

-40%

-20%

0%

20%

40%


UNDERLYING OPERATING MARGIN(1)

RETURNS TO NEAR HISTORIC HIGH IN Q409

23.6%

25.0%

21.0%

13.0%

-5.4%

4.4%

23.0%

26.4%

21.3%17.9%

-20.7%

25.9%

-30%

-20%

-10%

0%

10%

20%

30%

2004 2005 2006 2007 2008 2009

UN

DE

RL

YIN

G O

PE

RA

TIN

G M

AR

GIN

Fourth Quarter OnlyFiscal Year

(1) 2006–2007 Product GM% is Non-GAAP excluding stock comp expense, amortization of acquisition-related intangible assets, and purchase accounting adjustments.

2008–2009 Product GM% is underlying Product GM% calculated using Non-GAAP Cost of Sales, adjusted as follows:

2008: excludes inventory reserves, fab impairment charges, and accruals for 2009 fab underutilization

2009: excludes inventory reserve benefits, and includes all costs for 2009 fab underutilization


$2.00 $1.73$2.51 $(2.07) $1.84

0.37

0.58

0.30

0.55 0.61 0.54

0.750.68

0.87

0.69

1.18

(0.48)

0.19

0.440.21

0.39 0.36

(0.10)

(0.59)

(1.59)

($2.00)

($1.50)

($1.00)

($0.50)

$0.00

$0.50

$1.00

$1.50

2005 2006 2007 2008 2009

ACHIEVED RECORD EPS(1) IN Q409

(1) 2006–2009 is Non-GAAP EPS excluding stock comp expense, amortization of acquisition-related intangible assets, purchase accounting adjustments, impairment of goodwill and acquisition-related intangible assets, non-cash economic interest expense, and related tax adjustments and valuation allowance. Note: EPS in Q1 2000 was higher than in Q4 2009 due to a gain on an investment in foundry.

Q1 Q2 Q3 Q4

$0.92 without inventory reserve benefits


0.0

1.0

2.0

3.0

4.0

5.0

6.0

Q408 Q109 Q209 Q309 Q409

INV

EN

TO

RY

TU

RN

S M

EA

SU

RE

D IN

PB

sINVENTORY TURNS IMPROVE SIGNIFICANTLY Y/Y• Factors included: JV Restructuring; Fab Slowdown and

No Capacity Additions; Process Improvements; Sales Growth

Includes SanDisk Owned Inventory: Raw Material, WIP, Finished Goods and Retail & OEM Consignment


$481

$598$653

$88

($219)

($339)

($900)

($426)

$263 $259

$488

($49)

$438

($247)($338)

2005 2006 2007 2008 2009

RETURNED TO POSITIVE FREE CASH FLOW• Q4 Cash Flow from Operations and 2009 FCF were Highest Ever

Cash Flow from Operations Cash Used in Investing Free Cash Flow

Cash Used in Investing excludes purchases, sales and maturities of short-term and long-term marketable securities.

$ in

Mill

ion

s


$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

2006 2007 2008 2009

$ IN

MIL

LIO

NS

2009: NET CASH INCREASED AND OFF-B.S. LEASE GUARANTEES REDUCED

Off-Balance Sheet Equipment Lease Guarantees (Mil)

$654 $1139 $2095 $1070

(1) Debt includes the final maturity value for $1.15B Convertible and $75M Convertible(2) Net Cash is Cash & Marketable Securities less Debt

• A Net Improvement of $1.5B

• SanDisk is Calling its $75M Convertible as of March 15, 2010

Cash & Marketable Securities Debt (1) Net Cash (2)


GROWTH AND EARNINGS POWER RETURN

• Decisive actions & strong execution drove rapid recovery in 2009:

– Revenue up 6%

– Began year in a loss position, exited year at record profit levels

– Generated highest ever positive free cash flow

– Balance sheet and financial position strengthened


FINANCIAL REVIEW: A PATH TO A PROMISING FUTURE

• Growth and Earnings Power Return

• Balancing Growth, Profits and Cash Flow


2010 CAPITAL INVESTMENTS: MODERATE AND AFFORDABLEOver 7 years:• JV operating cash flow & return of capital funds ~28% of fab capex• Operating lease financing funds ~42% of fab capex—very attractive

cost of capital$ in Millions ACTUAL FORECAST 7-YEAR TOTAL

CAPITAL INVESTMENTS FY ′04 FY ′05 FY ′06 FY ′07 FY ′08 FY ′09 FY ′10 w/′10 midpt

Fab 1 & 2 33 91 15 139

Fab 3 23 519 905 899 260 69 200 2,875

Fab 4 4 700 1,174 241 400–600 2,618

TOTAL JOINT VENTURE FABS $ 56 $610 $ 924 $1,599 $1,433 $310 $600–$800 $5,632

SanDisk Owned Fab Equipment 63 39 102

Other SanDisk CapEx 63 95 176 259 184 60 100 937

TOTAL CAPITAL INVESTMENTS $182 $744 $1,100 $1,858 $1,617 $370 $700–$900 $6,672

FUNDING FY ′04 FY ′05 FY ′06 FY ′07 FY ′08 FY ′09 FY ′10 w/′10 midpt

Sale of Tools/Restructuring 39 277 316

JV Oper Cash Flow/Return of Capital 328 237 374 207 55 300–400 1,551

JV Operating Lease Financing 225 482 612 945 0 100 2,365

Net Cash Outlay 182 191 381 872 426 38 300–400 2,440

TOTAL FUNDING $182 $744 $1,100 $1,858 $1,617 $370 $700–$900 $6,672


$182

$744

$1,100

$1,858

$1,617

$370

10%

32% 34%

48% 48%

10%

~20%

0%

10%

20%

30%

40%

50%

60%

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

$1,800

$2,000

2004 2005 2006 2007 2008 2009 2010

Capital Investments % of Revenue

CAPITAL INVESTMENT—A MODERATE % OF REVENUE FOR 2010

Over the Long-Term, we Target an Average of 20%-30% of Revenue to Balance Growth and Positive Free Cash Flow

$700-$900

Capital Investments are funded by: JV Operating Cash Flow/Return of Capital, JV Operating Lease

Financing and Net Cash Outlay

$ in

Mill

ion

s % o

f Revenue


DEFINING SANDISK‘S LONG-TERM TARGET FINANCIAL MODEL (LTFM)

The LTFM is the P&L model we believe best balances:

– Growth, profitability & cash flow

The LTFM is the P&L model we aim to achieve

We will not be in the LTFM every year

– Industry & SanDisk subject to cyclicality

– In some years we will be below the LTFM, and in some years we will exceed the LTFM


KEY VARIABLES IMPACTING OUR BUSINESS MODEL

• Variability in Pricing–Industry supply/demand environment a key factor

• Timing of Technology Transitions and Mix of X2/X3–Strong track record of execution–Leader in X3

• Mix of Product Revenue and L&R Revenue–Product revenue currently growing faster than L&R revenue

• Mix of Captive/Non-Captive Memory –Higher non-captive mix results in:•Lower gross margins•Less capital investment required to meet demand

• Investment in Post-NAND technology–Requires parallel R&D spending


DEFINING SANDISK‘S LTFM

$ in Millions 2005 2006 2007 2008 2009 LTFM

Revenue $2,306 $3,258 $3,896 $3, 351 $3,567

Revenue Growth Y/Y 30% 41% 20% -14% 6%

Product Revenue 90% 90% 88% 85% 88% 92%–93%

L&R Revenue 10% 10% 12% 15% 12% 7%–8%

TOTAL REVENUE 100% 100% 100% 100% 100% 100%

Product Gross Margin (1) 35.5% 31.8% 24.3% -13.4% 28.4% 30%–36%

Total Gross Margin (1) 42.2% 38.8% 33.1% 3.8% 36.7% 35%–41%

R&D (1) 8.4% 8.2% 9.5% 11.7% 9.8% 7%–9%

S&M (1) 5.3% 5.6% 6.7% 9.2% 5.3% ~5%

G&A (1) 3.4% 4.0% 3.7% 5.3% 4.0% ~3%

Restructuring 0.2% 1.1%

Operating Expenses (1) 17.2% 17.7% 20.1% 27.2% 19.1% 15%–17%

OPERATING INCOME (1) 25.0% 21.0% 13.0% -23.4% 17.6% 20%–24%

(1) 2006–2009 and LTFM is Non-GAAP excluding stock comp expense, amortization of acquisition-related intangible assets, purchase accounting adjustments, and impairment of goodwill and acquisition-related intangible assets.


PLANNING ASSUMPTIONS FOR 2010

• Healthy supply/demand balance in industry

• Mobile end market remains key growth driver

• Consumer demand in U.S. and Europe remains somewhat muted

• Completing 32nm transition; beginning 24nm ramp in Q410

• Price decline less than estimated cost decline

• Close reins on spending; modest increases weighted toward R&D

• Limited use of non-captive memory, but could increase if demand is stronger


FORECAST FOR 2010

(1) Non-GAAP excluding stock comp expense, amortization of acquisition-related intangible assets, purchase accounting adjustments, and impairment of goodwill and acquisition-related intangible assets.

$in Millions LTFM FCST 2010

Revenue $4,000–$4,400

Revenue Growth Y/Y 12%–23%

Product Revenue 92%–93% ~92%

L&R Revenue 7%–8% ~8%

Total Revenue 100% 100%

Product Gross Margin (1) 30%–36% 28%–34%

Total Gross Margin (1) 35%–41% 34%–40%

R&D (1) 7%–9%

S&M (1) ~5%

G&A (1) ~3%

Restructuring

Operating Expenses (1) 15%–17%$725–$75016% –19%

OPERATING INCOME (1) 20%–24%15%–24%

Objective 20%+

• Objective is to be within LTFM


POSITIVE FREE CASH FLOW EXPECTED IN 2010

2009 2010

CASH FLOW FROM OPERATIONS $488 At least as much as 2009

CASH USED FOR INVESTING ($49) ($300)–($400)

FREE CASH FLOW $438 Positive Free Cash Flow

KEY FACTORS IN 2010 FORECASTED CASH FLOW FROM OPERATIONS:

COMPARED

TO 2009

Underlying Gross Margin forecasted to be much higher Higher

Tax will be a net payment (vs. net refund in 2009) Lower

Inventory Turns forecasted to improve further Higher


UPDATE ON Q1 2010

(1) Non-GAAP GM, Opex, Other Income and Tax rate exclude: stock comp expense, amortization of acquisition-related intangible assets, non-cash economic interest expense and related tax adjustments and valuation allowance.

• Total Revenue $875M–$950M– L&R revenue $80M–$90M– Product revenue $785M–$870M

• Prod GM%(1): 31% +/- 3 points

• Total GM%(1): 37% +/- 3 points

• Opex(1): $175–$185M

• Other Income(1): ~$10M

• Tax rate(1): 37%

• Total Revenue of $925M–$1.0B– Upside in product revenue

• Prod GM%(1): 34% +/- 2 points

• Total GM%(1): 40% +/- 2 points

• Opex(1): no change

• Other Income(1): no change

• Tax rate(1): no change

JAN 28, 2010 GUIDANCE FEB 26, 2010 UPDATE

• Pricing environment remains more favorable than in past Q1s

• OEM demand stronger than previously expected


SUMMARY: A PATH TO A PROMISING FUTURE

• Growth and earnings power have returned

• Focused on balancing growth, profits and cash flow

– Capital investments sized to enable growth and free cash flow

– LTFM helps guide our strategic decisions

– Objective is to be in our LTFM in 2010


THANK YOU


ELIHARARIChairman and Chief Executive Officer


SUMMARY: FLASH IS EVERYWHERE, WILL BE BIGGER THAN YOU THINK!

• FLASH UBIQUITOUS, AND GROWING

• SMARTPHONE = ―NEW PC‖ FLASH SSD

• ―MOBILE INTERNET IN EARLY INNINGS, WILL BE BIGGER THAN YOU THINK‖ (Morgan Stanley*)

• CLOUD COMPUTING: LAST NODE ON NETWORK, IN YOUR POCKET

• HIGHLY SCALED FLASH GETTING HARD TO DO WELL, SYSTEM SOLUTIONS BECOMING KEY PLAYING TO OUR STRENGTHS

Source: December 15, 2009, The Mobile Internet Report Mary Meeker © 2009 Morgan Stanley


Q&A


APPENDICES

• Basis of Presentation for Non-GAAP to GAAP Reconciliations

• Non-GAAP to GAAP Reconciliations for Historical Results

• Non-GAAP to GAAP Reconciliations for Forecasts


To supplement our condensed consolidated financial statements presented in accordance with generally accepted

accounting principles (GAAP), we use non-GAAP measures of operating results, net income (loss) and net income

(loss) per share, which are adjusted from results based on GAAP to exclude certain expenses, gains and losses.

These non-GAAP financial measures are provided to enhance the user's overall understanding of our current

financial performance and our prospects for the future. Specifically, we believe the non-GAAP results provide useful

information to both management and investors as these non-GAAP results exclude certain expenses, gains and

losses that we believe are not indicative of our core operating results and because it is consistent with the financial

models and estimates published by many analysts who follow the Company. For example, because the non-GAAP

results exclude the expenses we recorded for share-based compensation, the amortization of acquisition-related

intangible assets related to acquisitions of Matrix Semiconductor, Inc. in January 2006, msystems Ltd. in November

2006 and MusicGremlin, Inc. in June 2008, the impairment of goodwill and acquisition-related intangible assets, and

non-cash economic interest expense associated with our cash-settled convertible debt, we believe the inclusion of

non-GAAP financial measures provide consistency in our financial reporting. These non-GAAP results are some of

the primary indicators management uses for assessing our performance, allocating resources and planning and

forecasting future periods. Further, management uses non-GAAP information that excludes certain non-cash

charges, such as impairment of goodwill and acquisition-related intangible assets, amortization of purchased

intangible assets, share-based compensation and non-cash economic interest expense associated with our cash-

settled convertible debt, as these non-GAAP charges do not reflect the cash operating results of the business or the

ongoing results. These measures should be considered in addition to results prepared in accordance with GAAP,

but should not be considered a substitute for, or superior to, GAAP results. These non-GAAP measures may be

different than the non-GAAP measures used by other companies.

BASIS OF PRESENTATION FOR GAAP TO

NON-GAAP OPERATING RESULTS


RECONCILIATION OF NON-GAAP TO GAAP STATEMENT OF OPERATIONSThree months ended April 2, 2006(in thousands, except percentages and per share amounts, unaudited)

SanDisk Purchase SanDisk

Consolidated % of Share-based Accounting Consolidated % of

Non-GAAP Revenue Compensation Adjustments GAAP Revenue

Product revenue 537,728$ 86.3% -$ -$ 537,728$ 86.3%

License and royalty revenue 85,532 13.7% - - 85,532 13.7%

Total revenues 623,260 100.0% - - 623,260 100.0%

Cost of product revenues 384,867 61.8% - - 384,867 61.8%

Total cost of product revenues 384,867 61.8% - - 384,867 61.8%

Product gross profit 152,861 28.4% - - 152,861 28.4%

Gross profit 238,393 38.2% - - 238,393 38.2%

Research and development 54,976 8.8% 8,786 - 63,762 10.2%

Sales and marketing 39,336 6.3% 4,039 - 43,375 7.0%

General and administrative 24,055 3.9% 5,961 - 30,016 4.8%

Write-off of acquired in-process technology - 0.0% - 39,600 (a) 39,600 6.4%

Amortization of acquisition-related intangible assets - 0.0% - 3,715 (b) 3,715 0.6%

Total operating expenses 118,367 19.0% 18,786 43,315 180,468 29.0%

Operating income 120,026 19.3% (18,786) (43,315) 57,925 9.3%

Total other income 18,464 3.0% - - 18,464 3.0%

Income before taxes 138,490 22.2% (18,786) (43,315) 76,389 12.3%

Provision for income taxes 48,472 7.8% (5,845) (c) (1,353) (c) 41,274 6.6%

Net income 90,018$ 14.4% (12,941)$ (41,962)$ 35,115$ 5.6%

Net income per share, diluted 0.44$ 0.17$

Diluted shares used in computing net income per share 203,302 201,892

Effective tax rate 35.0% 54.0%

(a) Write-off of acquired in-process technology associated with the Matrix acquisition (January 2006).

(b) Amortization of acquisition-related intangible assets, primarily core and developed technology related to acquisitions of Matrix Semiconductor, Inc. (January 2006).

(c) Income taxes associated with certain non-GAAP adjustments.


RECONCILIATION OF NON-GAAP TO GAAP STATEMENT OF OPERATIONSThree months ended July 2, 2006(in thousands, except percentages and per share amounts, unaudited)

SanDisk Purchase Convertible SanDisk

Consolidated % of Share-based Accounting Debt Consolidated % of

Non-GAAP Revenue Compensation Adjustments Interest GAAP (d) Revenue

Product revenue 636,675$ 88.5% -$ -$ -$ 636,675$ 88.5%

License and royalty revenue 82,510 11.5% - - - 82,510 11.5%

Total revenues 719,185 100.0% - - - 719,185 100.0%

Cost of product revenues 427,699 59.5% 2,478 - - 430,177 59.8%

Total cost of product revenues 427,699 59.5% 2,478 - - 430,177 59.8%

Product gross profit 208,976 32.8% (2,478) - - 206,498 32.4%

Gross profit 291,486 40.5% (2,478) - - 289,008 40.2%

Research and development 63,364 8.8% 10,421 - - 73,785 10.3%

Sales and marketing 39,942 5.6% 5,125 - - 45,067 6.3%

General and administrative 29,336 4.1% 7,846 - - 37,182 5.2%

Amortization of acquisition-related intangible assets - 0.0% - 4,432 (a) - 4,432 0.6%

Total operating expenses 132,642 18.4% 23,392 4,432 - 160,466 22.3%

Operating income 158,844 22.1% (25,870) (4,432) - 128,542 17.9%

Total other income 22,013 3.1% - - (5,734) (c) 16,279 2.3%

Income before taxes 180,857 25.1% (25,870) (4,432) (5,734) 144,821 20.1%

Provision for income taxes 63,299 8.8% (6,667) (b) (1,718) (b) (1,855) (b) 53,059 7.6%

Net income 117,558$ 16.3% (19,203)$ (2,714)$ (3,879)$ 91,762$ 12.5%




(a) Amortization of acquisition-related intangible assets, primarily core and developed technology related to acquisition of Matrix Semiconductor, Inc. (January 2006).

(b) Income taxes associated with certain non-GAAP adjustments.

(c) Incremental interest expense relating to the non-cash economic interest expense associated with the Company's cash-settled convertible debt.

(d) As adjusted for the retroactive adoption of new accounting requirements, effective December 29, 2008, relating to non-cash economic interest expense associated with the Company's cash-settled convertible debt.


RECONCILIATION OF NON-GAAP TO GAAP STATEMENT OF OPERATIONSThree months ended October 1, 2006(in thousands, except percentages and per share amounts, unaudited)




Product revenue 673,189$ 89.6% -$ -$ -$ 673,189$ 89.6%


Total revenues 751,385 100.0% - - - 751,385 100.0%


Total cost of product revenues 452,724 60.3% 2,621 - - 455,345 60.6%

Product gross profit 220,465 32.7% (2,621) - - 217,844 32.4%

Gross profit 298,661 39.7% (2,621) - - 296,040 39.4%










Net income 123,614$ 16.5% (17,572)$ (2,761)$ (7,242)$ 96,039$ 12.3%




(a) Amortization of acquisition-related intangible assets, primarily core and developed technology related to acquisition of Matrix Semiconductor, Inc. (January 2006).





RECONCILIATION OF NON-GAAP TO GAAP STATEMENT OF OPERATIONSThree months ended December 31, 2006(in thousands, except percentages and per share amounts, unaudited)



Non-GAAP Revenue Compensation Adjustments Interest GAAP (e) Revenue

Product revenue 1,078,880$ 92.7% -$ -$ -$ 1,078,880$ 92.7%


Total revenues 1,163,695 100.0% - - - 1,163,695 100.0%

Cost of product revenues 729,932 62.7% 2,892 4,471 - 737,295 63.4%

Amortization of acquisition-related intangible assets - - - 10,368 (a) - 10,368 0.9%

Total cost of product revenues 729,932 62.7% 2,892 14,839 - 747,663 64.2%

Product gross profit 348,948 32.3% (2,892) (14,839) - 331,217 30.7%

Gross profit 433,763 37.3% (2,892) (14,839) - 416,032 35.8%




Write-off of acquired in-process technology - 0.0% - 186,000 (b) - 186,000 16.0%




Total other income 31,674 2.7% - - (10,913) (d) 20,761 1.8%


Provision for income taxes 86,409 7.4% (7,689) (c) (1,984) (c) (3,531) (c) 73,205 5.8%

Income (loss) after tax 193,289 16.6% (23,103) (203,708) (7,382) (40,904) -3.1%

Non-controlling interests 1,619 0.1% - - - 1,619 0.1%

Net income (loss) 191,670$ 16.5% (23,103)$ (203,708)$ (7,382)$ (42,523)$ -3.2%

Net income (loss) per share, diluted 0.87$ (0.20)$

Diluted shares used in computing net income (loss) per share 220,090 210,849


(a) Amortization of acquisition-related intangible assets, primarily core and developed technology related to acquisitions of Matrix Semiconductor, Inc. (January 2006) and msystems Ltd. (November 2006).

(b) Write-off of acquired in-process technology associated with the msystems Ltd. acquisition.


(d) Incremental interest expense relating to the non-cash economic interest expense associated with the Company's cash-settled convertible debt.

(e) As adjusted for the retroactive adoption of new accounting requirements, effective December 29, 2008, relating to non-cash economic interest expense associated with the Company's cash-settled convertible debt.


RECONCILIATION OF NON-GAAP TO GAAP STATEMENT OF OPERATIONSTwelve months ended December 31, 2006(in thousands, except percentages and per share amounts, unaudited)



Non-GAAP Revenue Compensation Adjustments Interest GAAP (e) Revenue

Product revenue 2,926,472$ 89.8% -$ -$ -$ 2,926,472$ 89.8%


Total revenues 3,257,525 100.0% - - - 3,257,525 100.0%

Cost of product revenues 1,995,222 61.2% 7,991 4,471 - 2,007,684 61.6%


Total cost of product revenues 1,995,222 61.2% 7,991 14,839 - 2,018,052 62.0%


Gross profit 1,262,303 38.8% (7,991) (14,839) - 1,239,473 38.0%




Write-off of acquired in-process technology - 0.0% - 225,600 (b) - 225,600 6.9%




Total other income 104,374 3.2% - - (27,353) (d) 77,021 2.4%


Provision for income taxes 264,741 8.1% (27,822) (c) (6,726) (c) (8,850) (c) 221,343 6.8%

Income after tax 524,479 16.1% (72,819) (251,145) (18,503) 182,012 5.6%


Net income 522,860$ 16.1% (72,819)$ (251,145)$ (18,503)$ 180,393$ 5.5%




(a) Amortization of acquisition-related intangible assets, primarily core and developed technology related to acquisitions of Matrix Semiconductor, Inc. (January 2006) and msystems Ltd. (November 2006).

(b) Write-off of acquired in-process technology associated with the Matrix and msystems Ltd. acquisitions.


(d) Incremental interest expense relating to the non-cash economic interest expense associated with the Company's cash-settled convertible debt.

(e) As adjusted for the retroactive adoption of new accounting requirements, effective December 29, 2008, relating to non-cash economic interest expense associated with the Company's cash-settled convertible debt.


RECONCILIATION OF NON-GAAP TO GAAP STATEMENT OF OPERATIONSThree months ended April 1, 2007(in thousands, except percentages and per share amounts, unaudited)




Product revenue 689,357$ 87.7% -$ -$ -$ 689,357$ 87.7%


Total revenues 786,086 100.0% - - - 786,086 100.0%





Gross profit 224,159 28.5% (3,214) (26,009) - 194,936 24.8%





Restructuring and other 6,516 0.8% - - - 6,516 0.8%


Operating income (loss) 46,811 6.0% (31,219) (35,109) - (19,517) -2.5%




Income (loss) after tax 49,995 6.4% (20,230) (25,180) (5,640) (1,055) -0.1%


Net income (loss) 44,835$ 5.7% (20,230)$ (25,180)$ (5,640)$ (6,215)$ -0.8%

Net income (loss) per share, diluted 0.19$ (0.03)$

Diluted shares used in computing net income (loss) per share 236,426 227,455


(a) Amortization of acquisition-related intangible assets, primarily core and developed technology related to acquisitions of Matrix Semiconductor, Inc. (1/06) and msystems Ltd. (11/06).





RECONCILIATION OF NON-GAAP TO GAAP STATEMENT OF OPERATIONSThree months ended July 1, 2007(in thousands, except percentages and per share amounts, unaudited)




Product revenue 719,991$ 87.1% -$ -$ -$ 719,991$ 87.1%


Total revenues 827,032 100.0% - - - 827,032 100.0%





Gross profit 243,722 29.5% (3,307) (16,702) - 223,713 27.1%





Restructuring and other 212 0.0% - - - 212 0.0%






Income after tax 71,893 8.7% (23,698) (19,660) (6,556) 21,979 2.7%

Non-controlling interests 51 0.0% - - - 51 0.0%

Net income 71,842$ 8.7% (23,698)$ (19,660)$ (6,556)$ 21,928$ 2.7%









RECONCILIATION OF NON-GAAP TO GAAP STATEMENT OF OPERATIONSThree months ended September 30, 2007(in thousands, except percentages and per share amounts, unaudited)




Product revenue 918,810$ 88.6% -$ -$ -$ 918,810$ 88.6%


Total revenues 1,037,423 100.0% - - - 1,037,423 100.0%





Gross profit 361,064 34.8% (4,162) (14,582) - 342,320 33.0%









Provision for income taxes 61,857 6.0% (11,613) (b) 3,469 (b) (3,548) (b) 50,165 4.8%

Income after tax 129,803 12.5% (22,514) (22,651) (7,989) 76,649 7.4%

Non-controlling interests - 0.0% - - - - 0.0%

Net income 129,803$ 12.5% (22,514)$ (22,651)$ (7,989)$ 76,649$ 7.4%









RECONCILIATION OF NON-GAAP TO GAAP STATEMENT OF OPERATIONSThree months ended December 30, 2007(in thousands, except percentages and per share amounts, unaudited)




Product revenue 1,117,967$ 89.7% -$ -$ -$ 1,117,967$ 89.7%


Total revenues 1,245,825 100.0% - - - 1,245,825 100.0%





Gross profit 460,392 37.0% (4,060) (14,582) - 441,750 35.5%









Provision for income taxes 79,387 6.4% 6,504 (b) (518) (b) (4,216) (b) 81,157 6.5%

Income after tax 161,629 13.0% (37,197) (18,622) (7,556) 98,254 7.9%

Non-controlling interests - 0.0% - - - - 0.0%

Net income 161,629$ 13.0% (37,197)$ (18,622)$ (7,556)$ 98,254$ 7.9%













Product revenue 3,446,125$ 88.4% -$ -$ -$ 3,446,125$ 88.4%


Total revenues 3,896,366 100.0% - - - 3,896,366 100.0%

Cost of product revenues 2,607,029 66.9% 14,743 7,066 - 2,628,838 67.5%


Total cost of product revenues 2,607,029 66.9% 14,743 71,875 - 2,693,647 69.1%


Gross profit 1,289,337 33.1% (14,743) (71,875) - 1,202,719 30.9%











Income after tax 413,320 10.6% (103,639) (86,113) (27,741) 195,827 5.0%


Net income 408,109$ 10.5% (103,639)$ (86,113)$ (27,741)$ 190,616$ 4.9%

Net income per share calculation:

Net income used in computing basic net income per share 408,109$ 190,616$

Tax-effected interest costs related to convertible long term debt 469 469

Net income used in computing diluted net income per share 408,578$ 191,085$









RECONCILIATION OF NON-GAAP TO GAAP STATEMENT OF OPERATIONSThree months ended March 30, 2008(in thousands, except percentages and per share amounts, unaudited)




Product revenue 724,051$ 85.2% -$ -$ -$ 724,051$ 85.2%


Total revenues 849,967 100.0% - - - 849,967 100.0%





Gross profit 276,992 32.6% (3,629) (14,582) - 258,781 30.4%










Net income 47,786$ 5.6% (15,188)$ (14,718)$ (6,920)$ 10,960$ 1.3%









RECONCILIATION OF NON-GAAP TO GAAP STATEMENT OF OPERATIONSThree months ended June 29, 2008 (in thousands, except percentages and per share amounts, unaudited)




Product revenue 687,508$ 84.3% -$ -$ -$ 687,508$ 84.3%


Total revenues 816,011 100.0% - - - 816,011 100.0%





Gross profit 167,462 20.5% (2,009) (14,582) - 150,871 18.5%







Operating loss (56,989) -7.0% (25,108) (19,135) - (101,232) -12.4%


Loss before taxes (36,447) -4.5% (25,108) (19,135) (12,219) (92,909) -11.4%

Benefit from income taxes (14,106) -1.7% 652 (b) 641 (b) (6,342) (b) (19,155) -2.3%

Net loss (22,341)$ -2.7% (25,760)$ (19,776)$ (5,877)$ (73,754)$ -9.0%

Net loss per share, diluted (0.10)$ (0.33)$

Diluted shares used in computing net loss per share 224,888 224,888


(a) Amortization of acquisition-related intangible assets, primarily core and developed technology related to acquisitions of Matrix Semiconductor, Inc. (January 2006), msystems Ltd. (November 2006),

and MusicGremlin, Inc. (June 2008).









Product revenue 689,556$ 83.9% -$ -$ -$ 689,556$ 83.9%


Total revenues 821,497 100.0% - - - 821,497 100.0%




Product gross loss (120,628) -17.5% (2,648) (14,582) - (137,858) -20.0%

Gross profit (loss) 11,313 1.4% (2,648) (14,582) - (5,917) -0.7%






Operating loss (205,294) -25.0% (25,551) (19,348) - (250,193) -30.5%

Total other loss (450) -0.1% - - (12,451) (c) (12,901) -1.6%

Loss before taxes (205,744) -25.0% (25,551) (19,348) (12,451) (263,094) -32.0%

Benefit from income taxes (73,656) -9.0% (10,853) (b) (10,940) (b) (1,746) (b) (97,195) -11.8%

Net loss (132,088)$ -16.1% (14,698)$ (8,408)$ (10,705)$ (165,899)$ -20.2%










RECONCILIATION OF NON-GAAP TO GAAP STATEMENT OF OPERATIONSThree months ended December 28, 2008 (in thousands, except percentages and per share amounts, unaudited)



Non-GAAP Revenue Compensation Adjustments Interest Impairments GAAP (e) Revenue

Product revenue 742,128$ 85.9% -$ -$ -$ -$ 742,128$ 85.9%

License and royalty revenue 121,749 14.1% - - - - 121,749 14.1%

Total revenues 863,877 100.0% - - - - 863,877 100.0%

Cost of product revenues 1,191,270 137.9% 2,489 - - - 1,193,759 138.2%

Amortization of acquisition-related intangible assets - - - 10,766 (a) - - 10,766 1.2%

Total cost of product revenues 1,191,270 137.9% 2,489 10,766 - - 1,204,525 139.4%

Product gross loss (449,142) -60.5% (2,489) (10,766) - - (462,397) -62.3%

Gross loss (327,393) -37.9% (2,489) (10,766) - - (340,648) -39.4%

Research and development 91,651 10.6% 10,161 - - - 101,812 11.8%

Sales and marketing 77,839 9.0% 4,587 - - - 82,426 9.5%

General and administrative 39,509 4.6% 6,677 - - - 46,186 5.3%

Impairment of goodwill - 0.0% - - - 845,453 (d) 845,453 97.9%

Impairment of acquisition-related intangible assets - 0.0% - - - 175,785 (d) 175,785 20.3%

Amortization of acquisition-related intangible assets - 0.0% - 3,275 (a) - - 3,275 0.4%

Restructuring and other 31,382 3.6% - - - - 31,382 3.6%

Total operating expenses 240,381 27.8% 21,425 3,275 - 1,021,238 1,286,319 148.9%

Operating loss (567,774) -65.7% (23,914) (14,041) - (1,021,238) (1,626,967) -188.3%

Total other income 24,472 2.8% - - (12,673) (c) - 11,799 1.4%

Loss before taxes (543,302) -62.9% (23,914) (14,041) (12,673) (1,021,238) (1,615,168) -187.0%

Provision for (benefit from) income taxes (183,971) -21.3% (12,065) (b) (7,084) (b) (106,327) (b) 452,210 (b) 142,763 16.5%

Net loss (359,331)$ -41.6% (11,849)$ (6,957)$ 93,654$ (1,473,448)$ (1,757,931)$ -203.5%



Effective tax rate 33.9% -8.8%



(b) Income taxes associated with certain non-GAAP adjustments and an allowance on deferred taxes.


(d) Impairment of goodwill and acquisition-related intangible assets primarily related to acquisitions of Matrix Semiconductor, Inc. (January 2006), msystems Ltd. (November 2006), MusicGremlin, Inc. (June 2008).

(e) As adjusted for the retrospective adoption of new accounting requirements, effective December 29, 2008, relating to non-cash economic interest expense associated with the Company's cash-settled convertible debt.





Non-GAAP Revenue Compensation Adjustments Interest Impairments GAAP (e) Revenue

Product revenue 2,843,243$ 84.8% -$ -$ -$ -$ 2,843,243$ 84.8%

License and royalty revenue 508,109 15.2% - - - - 508,109 15.2%

Total revenues 3,351,352 100.0% - - - - 3,351,352 100.0%

Cost of product revenues 3,222,978 96.2% 10,775 - - - 3,233,753 96.5%


Total cost of product revenues 3,222,978 96.2% 10,775 54,512 - - 3,288,265 98.1%


Gross profit 128,374 3.8% (10,775) (54,512) - - 63,087 1.9%




Impairment of goodwill - 0.0% - - - 845,453 (d) 845,453 25.2%

Impairment of acquisition-related intangible assets - 0.0% - - - 175,785 (d) 175,785 5.2%


Restructuring and other 35,467 1.1% - - - - 35,467 1.1%

Total operating expenses 911,236 27.2% 87,024 17,069 - 1,021,238 2,036,567 60.8%

Operating loss (782,862) -23.4% (97,799) (71,581) - (1,021,238) (1,973,480) -58.9%

Total other income 70,446 2.1% - - (49,340) (c) - 21,106 0.6%

Loss before taxes (712,416) -21.3% (97,799) (71,581) (49,340) (1,021,238) (1,952,374) -58.3%

Provision for (benefit from) income taxes (246,442) -7.4% (30,304) (b) (21,722) (b) (119,492) (b) 452,210 (b) 34,250 1.0%

Net loss (465,974)$ -13.9% (67,495)$ (49,859)$ 70,152$ (1,473,448)$ (1,986,624)$ -59.3%






(b) Income taxes associated with certain non-GAAP adjustments and an allowance on deferred taxes.


(d) Impairment of goodwill and acquisition-related intangible assets primarily related to acquisitions of Matrix Semiconductor, Inc. (January 2006), msystems Ltd. (November 2006), MusicGremlin, Inc. (June 2008).

(e) As adjusted for the retrospective adoption of new accounting requirements, effective December 29, 2008, relating to non-cash economic interest expense associated with the Company's cash-settled convertible debt.


RECONCILIATION OF NON-GAAP TO GAAP STATEMENT OF OPERATIONSThree months ended March 29, 2009(in thousands, except percentages and per share amounts, unaudited)

Purchase Convertible

% of Share-based Accounting Debt % of

Non-GAAP Revenue Compensation Adjustments Interest Other GAAP Revenue

Product revenues 588,099$ 89.2% -$ -$ -$ -$ 588,099$ 89.2%

License and royalty revenues 71,372 10.8% - - - - 71,372 10.8%

Total revenues 659,471 100.0% - - - - 659,471 100.0%

Cost of product revenues 655,104 99.3% 2,374 - - - 657,478 99.7%


Total cost of product revenues 655,104 99.3% 2,374 3,132 - - 660,610 100.2%


Gross profit (loss) 4,367 0.7% (2,374) (3,132) - - (1,139) -0.2%




Amortization of acquisition-related intangible assets - - - 292 (a) - - 292 0.0%

Restructuring and other 765 0.1% - - - - 765 0.1%

Total operating expenses 149,948 22.8% 13,956 292 - - 164,196 24.9%

Operating loss (145,581) -22.1% (16,330) (3,424) - - (165,335) -25.1%

Other income/(expense) (5,767) -0.8% - - (12,926) (b) - (18,693) -2.8%

Loss before income taxes (151,348) -22.9% (16,330) (3,424) (12,926) - (184,028) -27.9%

Provision for (benefit from) income taxes (42,885) -6.5% (4,511) (1,268) (4,791) 77,422 (c) 23,967 3.6%

Net loss (108,463)$ -16.4% (11,819)$ (2,156)$ (8,135)$ (77,422)$ (207,995)$ -31.5%




(a) Amortization of acquisition-related intangible assets, primarily core and developed technology related to acquisitions of Matrix Semiconductor, Inc. (1/06) and MusicGremlin, Inc. (6/08).

(b) Incremental interest expense relating to the non-cash economic interest expense associated with the Company's cash-settled convertible debt.

(c) Income taxes associated with certain non-GAAP to GAAP adjustments.


RECONCILIATION OF NON-GAAP TO GAAP STATEMENT OF OPERATIONSThree months ended June 28, 2009 (in thousands, except percentages and per share amounts, unaudited)






Total revenues 730,573 100.0% - - - - 730,573 100.0%

Cost of product revenues 475,998 65.2% 2,446 - - - 478,444 65.5%


Total cost of product revenues 475,998 65.2% 2,446 3,132 - - 481,576 65.9%

Product gross profit 134,434 22.0% (2,446) (3,132) - - 128,856 21.1%

Gross profit 254,575 34.8% (2,446) (3,132) - - 248,997 34.1%




Amortization of acquisition-related intangible assets - 0.0% - 291 (a) - - 291 0.0%


Operating income 94,219 12.9% (22,354) (3,423) - - 68,442 9.4%

Other income (expense) 17,875 2.4% - - (13,159) (b) - 4,716 0.6%

Income before income taxes 112,094 15.3% (22,354) (3,423) (13,159) - 73,158 10.0%

Provision for income taxes 29,146 3.9% (6,175) (1,270) (4,877) 3,827 (c) 20,651 2.8%

Net income 82,948$ 11.4% (16,179)$ (2,153)$ (8,282)$ (3,827)$ 52,507$ 7.2%




(a) Amortization of acquisition-related intangible assets, primarily core and developed technology related to acquisitions of Matrix Semiconductor, Inc. (1/06) and MusicGremlin, Inc. (6/08).

(b) Incremental interest expense relating to the non-cash economic interest expense associated with the Company's cash-settled convertible debt.

(c) Income taxes associated with certain non-GAAP to GAAP adjustments.








Total revenues 935,171 100.0% - - - - 935,171 100.0%

Cost of product revenues 493,422 60.6% (a) 2,347 - - - 495,769 60.9%

Amortization of acquisition-related intangible assets - 0.0% (a) - 3,132 (b) - - 3,132 0.4%

Total cost of product revenues 493,422 60.6% (a) 2,347 3,132 - - 498,901 61.3%

Product gross profit 320,389 39.4% (a) (2,347) (3,132) - - 314,910 38.7%

Total gross profit 441,749 47.2% (2,347) (3,132) - - 436,270 46.7% (a)

(a)

Research and development 87,788 9.4% 7,137 - - - 94,925 10.2% (a)


General and administrative 39,378 4.2% 5,972 - - - 45,350 4.8% (a)

Amortization of acquisition-related intangible assets - 0.0% - 292 (b) - - 292 0.0%



Other income (expense) 10,872 1.2% - - (13,410) (c) - (2,538) -0.3%


Provision for income taxes 98,112 10.5% (5,352) (1,270) (4,970) (80,398) (d) 6,122 0.7%

Net income 175,511$ 18.8% (14,022)$ (2,154)$ (8,440)$ 80,398$ 231,293$ 24.7%




(a) Percent of revenue calculations for cost of product revenues and product gross profit are based on product revenues only (license and royalty revenues are excluded).

(b) Amortization of acquisition-related intangible assets, primarily core and developed technology related to acquisitions of Matrix Semiconductor, Inc. (1/06) and MusicGremlin, Inc. (6/08).


(d) Income taxes associated with certain non-GAAP to GAAP adjustments.


RECONCILIATION OF NON-GAAP TO GAAP STATEMENT OF OPERATIONSThree months ended January 3, 2010 (in thousands, except percentages and per share amounts, unaudited)




Product revenues 1,141,972$ 92.0% -$ -$ -$ -$ 1,141,972$ 92.0%


Total revenues 1,241,591 100.0% - - - - 1,241,591 100.0%

Cost of product revenues 632,700 55.4% (a) 5,260 (b) - - - 637,960 55.9%

Amortization of acquisition-related intangible assets - 0.0% (a) - 3,133 (c) - - 3,133 0.2%

Total cost of product revenues 632,700 55.4% (a) 5,260 3,133 - - 641,093 56.1%


Total gross profit 608,891 49.0% (5,260) (3,133) - - 600,498 48.4% (a)

(a)

Research and development 97,020 7.8% 14,058 (b) - - - 111,078 8.9% (a)

Sales and marketing 56,383 4.5% 8,094 (b) - - - 64,477 5.2%

General and administrative 38,958 3.2% 10,090 (b) - - - 49,048 4.1% (a)

Amortization of acquisition-related intangible assets - 0.0% - 292 (c) - - 292 0.0%

Restructuring and other (727) -0.1% - - - - (727) -0.1%



Other income (expense) 15,885 1.3% - - (14,959) (d) - 926 0.1%


Provision for income taxes 155,931 12.6% (10,213) (1,342) (5,837) (100,788) (e) 37,751 3.1%

Net income 277,211$ 22.3% (27,289)$ (2,083)$ (9,122)$ 100,788$ 339,505$ 27.3%




(a)

(b)

(c)

(d)

(e) Income taxes associated with certain non-GAAP to GAAP adjustments.

Percent of revenue calculations for cost of product revenues and product gross profit are based on product revenues only (license and royalty revenues are excluded).

Share-based compensation expense. The fourth quarter and full fiscal year 2009 include a one-time cumulative adjustment of $16.2 million to increase share-based compensation due to the way in which the Company's third-party software

Amortization of acquisition-related intangible assets, primarily core and developed technology related to acquisitions of Matrix Semiconductor, Inc. (1/06) and MusicGremlin, Inc. (6/08).

Incremental interest expense relating to the non-cash economic interest expense associated with the Company's cash-settled convertible debt.


RECONCILIATION OF NON-GAAP TO GAAP STATEMENT OF OPERATIONSFor the year ended January 3, 2010(in thousands, except percentages and per share amounts, unaudited)




Product revenues 3,154,314$ 88.4% -$ -$ -$ -$ 3,154,314$ 88.4%


Total revenues 3,566,806 100.0% - - - - 3,566,806 100.0%

Cost of product revenues 2,257,224 71.6% (a) 12,427 (b) - - - 2,269,651 72.0%

Amortization of acquisition-related intangible assets - 0.0% (a) - 12,529 (c) - - 12,529 0.4%

Total cost of product revenues 2,257,224 71.6% (a) 12,427 12,529 - - 2,282,180 72.4%


Total gross profit 1,309,582 36.7% (12,427) (12,529) - - 1,284,626 36.0% (a)

(a)

Research and development 347,759 9.7% 36,399 (b) - - - 384,158 10.8% (a)

Sales and marketing 189,267 5.3% 19,247 (b) - - - 208,514 5.8%

General and administrative 143,872 4.1% 27,487 (b) - - - 171,359 4.8% (a)

Amortization of acquisition-related intangible assets - 0.0% - 1,167 (c) - - 1,167 0.0%

Restructuring and other 38 0.0% - - - - 38 0.0%

Total operating expenses 680,936 19.1% 83,133 1,167 - - 765,236 21.4%


Other income (expense) 38,865 1.1% - - (54,454) (d) - (15,589) -0.5%


Provision for income taxes 240,304 6.7% (26,251) (5,150) (20,475) (99,937) (e) 88,491 2.5%

Net income 427,207$ 12.0% (69,309)$ (8,546)$ (33,979)$ 99,937$ 415,310$ 11.6%




(a)

(b)

(c)

(d)

(e) Income taxes associated with certain non-GAAP to GAAP adjustments.

Percent of revenue calculations for cost of product revenues and product gross profit are based on product revenues only (license and royalty revenues are excluded).

Share-based compensation expense. The fourth quarter and full fiscal year 2009 include a one-time cumulative adjustment of $16.2 million to increase share-based compensation due to the way in which the Company's third-party software

Amortization of acquisition-related intangible assets, primarily core and developed technology related to acquisitions of Matrix Semiconductor, Inc. (1/06) and MusicGremlin, Inc. (6/08).

Incremental interest expense relating to the non-cash economic interest expense associated with the Company's cash-settled convertible debt.


SUMMARY OF Q1 2010 AND FISCAL YEAR 2010

FORWARD NON-GAAP AND GAAP GUIDANCEProvided on February 26, 2010 Investor Day Meeting (1)

(in millions, except for percentages)

Non-GAAP GAAP Non-GAAP GAAP

Product Revenue $845 - $910 $785 - $870 $3,640 - $4,080 $3,640 - $4,080

License & Royalty Revenue $80 - $ 90 $80 - $90 $320 - $360 $320 - $360

Total Revenue $925 - $1,000 $875 - $950 $4,000 - $4,400 $4,000 - $4,400

Product Gross Margin (2) (3) 34% +/- 2 points 33% +/- 2 points 31% +/- 3 points 30% +/- 3 points

Total Gross Margin 40% +/- 2 points 39% +/- 2 points 37% +/- 3 points 36% +/- 3 points

Operating Expenses (4) $175 - $185 $190 - $205 $725 - $750 $785 - $830

Other Income (Expense) (5) $10 ($4) $40 ($18)

Tax Rate 37% (6) 37% (6)

(1)

(2)

Explanation of Difference Between Non-GAAP and GAAP:(3)

(4)

(5)

(6)

Non-GAAP excludes incremental interest expense relating to the non-cash economic interest expense associated with

the Company's cash-settled convertible debt.

Non-GAAP total cost of product revenues excludes estimated share-based compensation expenses and amortization

of acquisition-related intangible assets.

Product gross margin reflects product revenues less total cost of product revenues.

Due to a partial valuation allowance on net deferred tax assets, no estimate of GAAP tax provision rate is possible at

this time.

The information herein is qualified by and subject to the disclaimer, regarding forward-looking language statements,

that is included on our SanDisk Investor Relations web page at www.sandisk.com/ir.

Q1 2010 Fiscal Year 2010

Non-GAAP operating expenses excludes estimated share-based compensation expenses and amortization of

acquisition-related intangible assets.


RECONCILATION OF NON-GAAP TO GAAP FOR LONG-TERM

FINANCIAL MODELProvided on February 26, 2010 Investor Day Meeting

LTFM

Long-Term

Target

Financial Adjustments

Model To Reconcile

Non-GAAP To GAAP (1) GAAP

Revenue

Revenue Growth Y/Y

Product Revenue 92% - 93% - 92% - 93%

L&R Revenue 7% - 8% - 7% - 8%

Total Revenue 100% - 100%

Product Gross Margin 30% - 36% (1%) 29% - 35%

Total Gross Margin 35% - 41% (1%) 34% - 40%

R&D 7% - 9% 1% 8% - 9%

S&M ~5% 1% ~6%

G&A ~3% 1% ~4%

Oper Expenses 15% - 17% 2% 17% - 19%

Oper Income 20% - 24% 3% 17% - 21%

(1) Estimated stock compensation expense and amortization of

acquisition-related intangible assets.


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