Product revenues were $88.1 million, unchanged from the prior quarter with an increase in units shipped offset by lower average selling prices. Revenues from licenses and royalties were $19.0 million, increasing from $13.2 million in the first quarter of 2001 due to higher royalty bearing sales by licensees. Net loss in the second quarter of 2001 was $10.0 million, or $0.15 per share and includes inventory write-down and equipment write-off charges of $30.7 million. This compares to a net loss of $29.1 million, or $0.43 per share in the first quarter of 2001, excluding the $114 million write-down of the UMC investment. In the second quarter, the Company would have had net income of $3.0 million, or $0.04 per diluted share compared to a net loss of $0.3 million, or $0.01 per share in the first quarter of 2001, excluding any inventory write-down and equipment write-off charges.
Total second quarter revenues decreased 26% from $143.9 million in the second quarter of 2000. Product revenues declined 28% from $122.6 million in the same period of the prior year due to a 44% decline in average unit selling prices, partially offset by an increase in unit sales of 16%. Revenues from licenses and royalties decreased 11% from $21.4 million in the second quarter of 2000. Second quarter 2001 net loss of $10.0 million, or $0.15 per share compares to earnings of $24.3 million, or $0.33 per diluted share, for the second quarter of 2000.
Product gross margin for the second quarter of 2001 was negative 21% due primarily to inventory write-down and equipment write-off charges of $30.7 million, compared to negative 35% in the first quarter of 2001 which included an inventory charge of $45.3 million. This second quarter charge consisted of a $23.1 million write-down of current inventory due to lower market pricing and $7.6 million for the write-off of tools and equipment related to an accelerated technology transition from NOR to NAND. Excluding the current and prior quarter charges, product gross margins were 14% in the second quarter of 2001, compared to 17% in the prior quarter. While unit shipments increased 16%, product gross margin was impacted by a decline of 22% in the average selling price per megabyte compared to the first quarter of 2001, which was partially offset by product cost reductions. The current quarter increase in license and royalties was attributable to the alignment of prior period estimates based on actual reports received.
Considering the current market conditions, this second quarter turned out moderately better than expected notwithstanding the current quarter charges, said Dr. Eli Harari, President and CEO of SanDisk. Pricing pressures continued during the quarter due to weak demand and excess market supply. Ongoing inventory corrections continued throughout the quarter for our OEM customers and the industrial distribution channels. On the positive side, we experienced a strong pickup in demand in the retail channels in the US, as well as in Europe where we had a record sales quarter. While current market conditions remain challenging and most of our projected sales in the third quarter are expected to come from turns business that has yet to be booked, we are encouraged by the strength of the sell through of our products in the retail market, as well as the quote activity for our SD cards and our NAND flash components.
We are aggressively executing the technology transition from .24 micron NOR flash to .16 micron NAND flash. We are tightly controlling our expenses and our cash flow. We are also continuing our investments in advanced flash technology and in the FlashVision manufacturing joint venture with Toshiba in Virginia. In the second quarter, qualification was successfully completed for the 512 megabit .16 micron wafers jointly developed with Toshiba and we commenced production shipments of cards built with these chips. As we ramp up the NAND production volume in Virginia, we are in parallel ramping down NOR production output from our wafer foundries in Taiwan. This technology transition, expected to be essentially completed by year-end, we believe will be the key to achieving a highly competitive cost structure and improved margins in 2002.
SOURCE: COMPANY PRESS RELEASE
