About 98-99% of SanDisk NAND flash are of multi-level cell structure. As there still is a considerable amount of low-price MLC NAND flash being sold in the market, prices are being affected. Once the inventory clears, a more moderate pricing environment should be seen, company chairman and chief executive officer Eli Harari stressed. Continuous adjustments in price have to be made in the second quarter despite the anticipated improving pricing situation, Harari said. In response to the price pressure, SanDisk is gearing up its pace on 56nm NAND flash production. The company has already ramped up volume production of MLC NAND flash on 56nm. Higher density, including 8Gb and 16Gb chips, will be introduced for 56nm production. Fab 3 is expected to ramp up to a monthly capacity of 150,000 wafers per month by year-end of 2007, which beats the original plan of 135,000 wafers, Harari detailed. Fab 4 is expected to contribute to sales in the first half of 2008. SanDisk also plans to start 45nm NAND flash in the first half of 2008.
Excess supply and sharp price declines dampened the performance of SanDisk, prompting it to take price actions in the second quarter to narrow the price gap with competitors. In the first quarter of 2007, the NAND flash industry experienced excess supply, especially for MLC NAND flash, sharper price declines from competitors and depressed margins, which resulted in a quarterly loss of US$575,000 for SanDisk, compared to a net income of US$35.1 million a year ago. Gross margins in the first quarter was 14.2%, compared to 28.4% last year. Despite seeing average retail card capacity jump by 87% on year and 11% on quarter to 1231MB, average price per megabyte sold declined 62% on an on-year basis and 23% on an on-quarter basis.