Вы находитесь на странице: 1из 11

North America Equity Research

15 July 2010

Neutral
SanDisk Corp SNDK, SNDK US
Price: $45.13
NAND Fundamentals Remain Strong; Assuming
Price Target: $50.00
Coverage with a $50 PT and Neutral Rating

We are assuming coverage of SanDisk with a Neutral rating and YE’10 $50 price SMid Semiconductors
target. Under prior J.P. Morgan coverage, the price target was $51. We believe a AC
Harlan Sur
combination of demand strength and positive NAND industry fundamentals should
(1-415) 315-6700
provide SanDisk with continued top-line growth opportunities while maintaining harlan.sur@jpmchase.com
healthy, but steadily declining, margins through C11 as our Asia memory team expects
John S. Ahn
a slight oversupply condition and a more aggressive pricing environment.
(1-415) 315-6758
john.s.ahn@jpmchase.com
• Despite solid NAND industry demand fundamentals, price/bit declines and
J.P. Morgan Securities Inc.
industry oversupply likely will accelerate in C11, and this should moderate
SNDK's gross margin structure downwards toward its target range. We Price Performance
believe a combination of high demand and tight capacity should keep NAND
supply/demand roughly in balance through C10; however our Asia memory team 45

expects slight oversupply in C11 and more aggressive price declines. $


35

25
• We believe robust end demand for SanDisk’s embedded NAND solutions in
portable applications will drive solid revenue growth. NAND Flash memory 15
Jul-09 Oct-09 Jan-10 Apr-10 Jul-10
content in smartphones, notebook PCs, and tablet PCs have increased significantly
over the past couple of years, and we believe this trend will continue for the
foreseeable future. J.P. Morgan's Asia memory team estimates that NAND Flash
demand in mobile phones will increase 95% in C11 while demand in SSDs will
grow 273% (Table 1). Given the strong demand environment, we estimate
SanDisk's bit shipments will increase 72% in C10 and 82% in C11.

• SanDisk continues to innovate next-generation Flash technology, which should


allow for continued cost scaling. The company’s pioneering work in multi-level
cell (MLC) technology and drive toward 2Xnm and 1Xnm process technology nodes
should help the company increase memory density and drive cost scaling.

• We assume coverage with a $50 price target and Neutral rating. SNDK stock
has significantly outperformed the market, up 192% Y-Y and up 56% YTD versus
the SOX index at up 34% and up 1%, respectively. Our price target assumes that
SNDK should trade at 14x our C11 GAAP EPS estimate of $3.55, or at a multiple
similar to the average stock in our coverage universe. Upside to our price target is
below the upside for the average stock in our universe, and this keeps us at Neutral.

SanDisk Corp (SNDK;SNDK US)


2009A 2010E 2011E Company Data
EPS Reported ($) Price ($) 45.13
Q1 (Mar) (0.92) 0.99A 0.79 Date Of Price 14 Jul 10
Q2 (Jun) 0.23 0.81A 0.77 52-week Range ($) 50.55 - 15.00
Q3 (Sep) 0.99 0.87A 0.89 Mkt Cap ($ bn) 10.43
Q4 (Dec) 1.45 1.05A 1.10 Fiscal Year End Dec
FY 1.80 3.72A 3.55 Shares O/S (mn) 231
Revenues FY ($ mn) 3,567 4,992A 5,761 Price Target ($) 50.00
Source: Company data, Bloomberg, J.P. Morgan estimates. Note: PF ex-options & amortization: Price Target End Date 31 Dec 10
GAAP 2010 1QA=$0.99, 2QE=$0.81, 3QE=$0.87, 4QE=$1.03, FY10E=$3.71
GAAP 2011 1QE=$0.88, 2QE=$0.81, 3QE=$0.71, 4QE=$0.76 , FY11E=$3.15
'Bloomberg' above denotes Bloomberg consensus estimates.

See page 9 for analyst certification and important disclosures.


J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may
have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their
investment decision.
Harlan Sur North America Equity Research
(1-415) 315-6700 15 July 2010
harlan.sur@jpmchase.com

Key Investment Points


Despite solid NAND industry demand fundamentals, price/bit declines and
industry oversupply likely will accelerate in 2011, and this should moderate
SNDK's gross margin structure downwards toward its non-GAAP target range
of 35-41%
We believe a combination of high demand and tight capacity should keep NAND supply /
demand roughly in balance through 2010; however, our Asia memory team expects slight
oversupply in 2011 and more aggressive price declines (Figure 1). After modest ASP
per bit declines and peak margin levels over the past several quarters, we believe
prices and margins will eventually come under pressure as foundries methodically
ramp capacity. Additionally, we note that in order to fulfill healthy demand in the
face of tight supply, SanDisk may need to increasingly turn to non-captive NAND
sources (i.e., non-Toshiba JV fabs), which would put downward pressure on gross
margin due to the relatively higher cost of non-captive product.

Figure 1: J.P. Morgan's Asia memory team anticipates that NAND supply/demand balance in 2010
giving way to slight oversupply in 2011
1Gb Equivalent (mm units)

48000

43000

38000
NAND Units (mm)

33000

28000

23000

18000

13000

8000
1Q09 2Q09 3Q09 4Q09 1Q10 2Q10E 3Q10E 4Q10E 1Q11E 2Q11E 3Q11E 4Q11E

Quarters
Total Demand Total Supply

Source: J.P. Morgan estimates.

We believe robust end demand for SanDisk’s embedded NAND solutions in


portable applications will drive substantial revenue growth
SSD: Solid State Drive NAND Flash memory content in consumer-oriented devices like smartphones,
notebook PCs (via SSDs) and tablet PCs have increased significantly over the past
couple of years as OEM’s strive to produce smaller and thinner devices, maximize
storage capacity, minimize power consumption, and lower bill-of-material costs. We
believe this trend will continue for the foreseeable future given the increased
demands for higher portability, longer battery life, and greater storage capacity due to
higher multimedia content. J.P. Morgan's Asia memory team estimates that NAND
Flash demand in mobile phones will increase 95% in 2011 while demand in SSDs
will grow 273% (Table 1). Given the strong demand environment, we estimate
SanDisk's bit shipments will increase 72% in 2010 and 82% in 2011.

2
Harlan Sur North America Equity Research
(1-415) 315-6700 15 July 2010
harlan.sur@jpmchase.com

Table 1: J.P. Morgan’s Asia memory team's NAND demand forecast remains robust, driven by
mobile phones and SSD applications
1Gb equivalent (mm units)
2009 2010E 2011E
Digital Camera (DSC) 9,554 15,162 22,383
Seq chg % 59% 59% 48%
% of total 20% 19% 16%
Mobile Phones 15,696 30,748 60,011
Seq chg % 90% 96% 95%
% of total 34% 38% 42%
USB Flash Drive 5,201 7,673 10,736
Seq chg % 63% 48% 40%
% of total 11% 10% 7%
MP3P/PMP 6,852 8,244 8,863
Seq chg % 17% 20% 8%
% of total 15% 10% 6%
SSD 2,081 7,017 26,158
Seq chg % 183% 237% 273%
% of total 4% 9% 18%
Ohers 7,408 11,634 15,380
Seq chg % 51% 57% 32%
% of total 16% 14% 11%
Total 46,791 80,477 143,531
Seq chg % 62 72 78
Source: J.P. Morgan estimates.

SanDisk continues to innovate next-generation Flash technology, which should


allow for continued cost scaling
SanDisk has been a leader in developing multi-level cell (MLC) Flash technology
that holds multiple bits per cell. The benefit of MLC Flash is that it allows for
greater amounts of data to be stored in a given area of silicon. The company is
currently shipping NAND Flash memories that hold three bits per cell (X3) and has
pioneered the next-generation X4 technology, which holds four bits per cell.
Concomitantly, SanDisk has been aggressively shrinking their technology nodes
from 43 nm to the current 32 nm technology and has a roadmap to get to 24 nm by
end-2011 and eventually to 1Xnm in late-2012. All of these efforts at MLC and
smaller geometries are aimed at increasing memory density per silicon, which in turn
lowers cost per bit.

Our 2010 and 2011 estimates reflect our view on continued NAND demand
strength tempered by accelerating price declines in 2011
Given our expectations for robust end demand, we are modeling top-line growth of
40% in 2010 and 15% in 2011. Therefore, our revenue estimates are $4.99 billion in
2010 and $5.76 billion in 2011. However, we believe that increased capacity will
lead to slight oversupply of NAND in 2011, which will result in steeper price
declines and shrinking GAAP gross margins (from a peak of 48.4% in 4QC09 to
38% in 4QC11). Consequently, our GAAP EPS estimates are $3.72 in 2010 and
$3.55 in 2011.

3
Harlan Sur North America Equity Research
(1-415) 315-6700 15 July 2010
harlan.sur@jpmchase.com

Valuation
We assume coverage with a $50 YE’10 price target and Neutral rating
SNDK stock has significantly outperformed the market, up 192% Y-Y and up 56%
YTD versus the SOX index at up 34% and up 1%, respectively. Our price target
assumes that SNDK should trade at 14x our C11 GAAP EPS estimate of $3.55, or at
a multiple similar to the average stock in our coverage universe. We believe P/E
valuation is more appropriate for companies that are generating positive earnings
(return to shareholders) as opposed to P/S, which only captures revenue generation.
SNDK is generating earnings and their earnings are close to their true earning power,
and therefore we view the P/E multiple as more appropriate. Upside to our price
target is below the upside for the average stock in our universe, and this keeps us at
Neutral.

Investment Risks
Upside risks to our investment thesis include:

• Overall NAND capacity remains constrained below expectations beyond 2011,


which would keep ASP/bit declines at minimal levels and boost SanDisk
margins;
• SanDisk establishes favorable new royalty agreements;
• SSD demand grows meaningfully, and this could drive meaningful upside to our
revenue and earnings targets.
Downside risks to our investment thesis:

• The global economic recovery falters or performs worse than expected;


• NAND capacity ramps quicker than expected, resulting in higher-than-expected
ASP/bit declines, lower revenues and lower margins;
• Higher-than-expected demand and/or more severe capacity constraints force
SanDisk to rely more heavily on non-captive NAND sources, which would put
downward pressure on margins.

4
Harlan Sur North America Equity Research
(1-415) 315-6700 15 July 2010
harlan.sur@jpmchase.com

Appendix I: Comp and Group Valuation


Table 2: SMid Semiconductor Comp and Group Valuation Table
Prof Prof
Mkt Cap EPS EPS Rev Rev P/E P/E P/E P/E EV/Sales EV/Sales
Name Ticker Rating Stock Price Shares (M) ($M) 2010E 2011E 2010E ($M) 2011E ($M) 2010E 2011E 2010E 2011E 2009 2010E
Broadcom BRCM Overweight $ 37.17 537 $ 19,959 $1.90 $2.25 $ 6,509 $ 7,379 19.6 16.5 14.8 13.2 4.0 2.6
Marvell MRVL Overweight $ 17.47 678 $ 11,846 $1.42 $1.55 $ 3,678 $ 4,039 12.3 11.3 11.0 10.0 3.6 2.6
Cavium CAVM Overweight $ 29.13 44 $ 1,275 $0.42 $0.84 $ 198 $ 265 69.4 34.7 37.3 25.3 12.0 6.0
PMC-Sierra PMCS Overweight $ 8.06 234 $ 1,883 $0.70 $0.80 $ 664 $ 752 11.5 10.0 10.2 9.1 3.0 2.0
NVIDIA NVDA Neutral $ 11.03 595 $ 6,563 $0.96 $1.05 $ 4,040 $ 4,211 11.5 10.5 9.8 9.3 1.5 1.1
LSI LSI Neutral $ 5.02 665 $ 3,340 $0.37 $0.45 $ 2,669 $ 2,837 13.6 11.2 10.9 9.5 1.2 0.9
Atheros ATHR Neutral $ 30.21 74 $ 2,236 $1.90 $2.05 $ 948 $ 1,025 15.9 14.7 12.2 11.6 3.4 1.8
Mellanox MLNX Neutral $ 24.68 35.8 $ 884 $0.77 $0.95 $ 164 $ 189 32.1 26.0 21.6 19.0 5.8 3.8

SanDisk SNDK Neutral $ 45.13 238.06842 $ 10,744 $3.72 $3.55 $ 4,992 $ 5,761 12.1 12.7 11.7 12.0 3.0 2.1

Average 16.1 14.1 12.8 6.6 3.2 2.1

Historical Avg ~26 ~3.5


SOX SOX 361.86
Nasdaq CCMP 2,249.84
SP500 SPX 1,095.17

Source: Bloomberg and J.P. Morgan estimates. Prices as of market close on 7/14/10. Averages are for the group.

5
Harlan Sur North America Equity Research
(1-415) 315-6700 15 July 2010
harlan.sur@jpmchase.com

Appendix II: Financial Statements


Table 3: SanDisk Income Statement
$ in millions
1Q 09A 2Q 09A 3Q 09A 4Q 09A FY 09A 1Q 10A 2Q 10E 3Q 10E 4Q 10E FY 10E 1Q 11E 2Q 11E 3Q 11E 4Q 11E FY 11E

Product 588.1 610.4 813.8 1142.0 3154.3 993.2 1062.0 1172.5 1403.4 4631.1 1173.3 1214.3 1366.1 1635.3 5389.0

Lice nse & Royalty 71.4 120.1 121.4 99.6 412.5 93.5 87.5 90.0 90.0 361.0 96.3 90.1 92.7 92.7 371.8
Ne t re ve nue s 659.5 730.6 935.2 1241.6 3566.8 1086.7 1149.5 1262.5 1493.4 4992.1 1269.5 1304.5 1458.8 1728.0 5760.8
% Growth, y/y -22.4% -10.5% 13.8% 43.7% 6.4% 64.8% 57.3% 35.0% 20.3% 40.0% 16.8% 13.5% 15.6% 15.7% 15.4%
% Growth, q/q -23.7% 10.8% 28.0% 32.8% -12.5% 5.8% 9.8% 18.3% -15.0% 2.8% 11.8% 18.4%

Cost of re ve nue s - (Pro-Forma) 655.1 476.0 493.4 632.7 2257.2 580.9 647.8 726.9 870.1 2825.8 750.9 789.3 888.0 1062.9 3491.1
% of Sales 99.3% 65.2% 52.8% 51.0% 63.3% 53.5% 56.4% 57.6% 58.3% 56.6% 59.1% 60.5% 60.9% 61.5% 60.6%

Total cost of re ve nue (GAAP) 660.6 481.6 498.9 641.1 2282.2 586.5 653.5 732.5 878.8 2851.3 756.6 795.2 893.7 1071.9 3517.3
GAAP Gross profit (1.1) 249.0 436.3 600.5 1284.6 500.2 496.0 529.9 614.7 2140.8 512.9 509.3 565.1 656.1 2243.5
GAAP Gross Margin -0.2% 34.1% 46.7% 48.4% 36.0% 46.0% 43.1% 42.0% 41.2% 42.9% 40.4% 39.0% 38.7% 38.0% 38.9%
NAND Product Gross Margin (GAAP) -12.3% 21.1% 38.7% 43.9% 27.6% 40.9% 38.5% 37.5% 37.4% 38.4% 35.5% 34.5% 34.6% 34.5% 34.7%

Pro-forma Gross Profit 4.4 254.6 441.7 608.9 1309.6 505.8 501.7 535.5 623.3 2166.3 518.7 515.1 570.8 665.0 2269.7
Pro-forma Gross Margin 0.7% 34.8% 47.2% 49.0% 36.7% 46.5% 43.6% 42.4% 41.7% 43.4% 40.9% 39.5% 39.1% 38.5% 39.4%
NAND Product Gross Margin (Pro form a) -11.4% 22.0% 39.4% 44.6% 28.4% 41.5% 39.0% 38.0% 38.0% 39.0% 36.0% 35.0% 35.0% 35.0% 35.2%

Operating expenses:
Research and development 86.9 91.2 94.9 111.1 384.2 98.7 103.6 107.7 113.1 423.1 107.5 109.6 111.8 114.0 442.9
% of Sales 13.2% 12.5% 10.2% 8.9% 10.8% 9.1% 9.0% 8.5% 7.6% 8.5% 8.5% 8.4% 7.7% 6.6% 7.7%

Sales & Marketing 37.9 50.4 55.8 64.5 208.5 48.5 52.4 56.6 65.1 222.5 61.8 64.9 66.8 70.9 264.4
% of Sales 5.7% 6.9% 6.0% 5.2% 5.8% 4.5% 4.6% 4.5% 4.4% 4.5% 4.9% 5.0% 4.6% 4.1% 4.6%

General and Administrative 38.3 38.6 45.4 49.0 171.4 38.7 40.7 42.7 44.8 166.9 42.6 43.9 45.2 46.5 178.2
% of Sales 5.8% 5.3% 4.8% 4.0% 4.8% 3.6% 3.5% 3.4% 3.0% 3.3% 3.4% 3.4% 3.1% 2.7% 3.1%

GAAP O pe rating income (loss) (165.3) 68.4 240.0 376.3 519.4 314.0 299.1 322.7 391.4 1327.1 300.8 290.7 341.0 424.4 1356.9
Operating Margin -25.1% 9.4% 25.7% 30.3% 14.6% 28.9% 26.0% 25.6% 26.2% 26.6% 23.7% 22.3% 23.4% 24.6% 23.6%

Pro Forma O pe rating income (loss) (145.6) 94.2 262.8 417.3 628.6 334.3 319.5 343.7 416.2 1413.6 321.9 311.9 362.9 450.3 1447.1
Operating Margin -22.1% 12.9% 28.1% 33.6% 17.6% 30.8% 27.8% 27.2% 27.9% 28.3% 25.4% 23.9% 24.9% 26.1% 25.1%
YoY basis point Operating Margin change -2763 1938 5309 9933 4086 5284 1490 -87 -574 1069 -541 -388 -235 -181 -320

Equity Income from Joint Ventures 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Interest income (18.7) 4.7 (2.5) 0.9 (15.6) 9.0 8.2 7.9 8.5 33.6 8.5 9.0 8.7 9.0 35.3
Interest expense 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
GAAP Income (loss) before income taxes (184.0) 73.16 237.42 377.3 503.8 323.0 307.3 330.6 399.8 1360.7 309.3 299.7 349.8 433.4 1392.1
GAAP income taxes 24.0 20.7 6.1 37.8 88.5 88.3 113.7 122.3 147.9 472.3 117.5 113.9 132.9 164.7 529.0
Minority interest 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
GAAP Ne t income (loss) from continuing ope rations (208.0) 52.5 231.3 339.5 415.3 234.7 193.6 208.3 251.9 888.5 191.8 185.8 216.9 268.7 863.1
Net Margin -31.5% 7.2% 24.7% 27.3% 11.6% 21.6% 16.8% 16.5% 16.9% 17.8% 15.1% 14.2% 14.9% 15.5% 15.0%

Pro Forma Ne t income (108.5) 82.9 175.5 277.2 427.2 225.0 206.5 221.5 267.5 920.5 204.9 199.0 230.4 284.8 919.0
Net Margin -16.4% 11.4% 18.8% 22.3% 12.0% 20.7% 18.0% 17.5% 17.9% 18.4% 16.1% 15.3% 15.8% 16.5% 16.0%

GAAP Dilute d EPS ($0.92) $0.23 $0.99 $1.45 $1.80 $0.99 $0.81 $0.87 $1.05 $3.72 $0.79 $0.77 $0.89 $1.10 $3.55

Pro Forma Dilute d EPS ($0.48) $0.36 $0.75 $1.18 $1.85 $0.95 $0.87 $0.93 $1.11 $3.86 $0.85 $0.82 $0.94 $1.16 $3.77
% Change, y/y -187.6% 108.8% -2.1%

Weighted average common shares outstanding - basic 226.5 231.1 232.7 234.5 231.2 229.3 230.4 231.6 232.8 231.0 235.6 236.8 238.0 239.2 237.4
Weighted average common shares outstanding - diluted 226.5 231.1 233.0 234.4 231.2 236.9 238.1 239.3 240.5 238.7 241.7 242.9 244.1 245.3 243.5

Source: Company reports and J.P. Morgan estimates.

6
Harlan Sur North America Equity Research
(1-415) 315-6700 15 July 2010
harlan.sur@jpmchase.com

Table 4: SanDisk Balance Sheet


$ in millions
1Q 09A 2Q 09A 3Q 09A 4Q 09A FY 09A 1Q 10A 2Q 10E 3Q 10E 4Q 10E FY 10E 1Q 11E 2Q 11E 3Q 11E 4Q 11E FY 11E
ASSET S
Current assets:
Excess Cash 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Cash and cash equivalents 1,090.1 884.5 752.5 1,100.4 1,100.4 1,022.5 902.5 1,109.3 1,134.6 1,134.6 1,336.0 1,225.9 1,321.7 1,238.0 1,238.0
Short term investments 395.1 477.6 699.6 819.0 819.0 922.0 922.0 922.0 922.0 922.0 922.0 922.0 922.0 922.0 922.0
Total cash & ST inve stme nts 1,485.2 1,362.1 1,452.1 1,919.4 1,919.4 1,944.5 1,824.5 2,031.3 2,056.6 2,056.6 2,258.0 2,147.9 2,243.7 2,160.0 2,160.0
Investment in Foundries 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Accounts Receivable
Allowance for doubtful accounts
Accounts receivable, net 109.1 150.8 279.7 234.4 234.4 234.5 277.1 304.4 360.1 360.1 320.0 328.8 367.7 435.5 435.5
Inventories 552.2 527.1 621.0 596.5 596.5 567.6 608.8 682.4 818.6 818.6 713.1 749.4 842.3 1,010.2 1,010.2
Deferred tax assets, net 17.1 55.5 84.7 66.9 66.9 43.6 43.6 43.6 43.6 43.6 43.6 43.6 43.6 43.6 43.6
Net Investment in lease receivable
Other current assets 224.1 197.6 75.5 97.6 97.6 52.2 197.6 75.5 97.6 97.6 52.2 197.6 75.5 97.6 97.6
Total curre nt asse ts 2,387.6 2,293.1 2,512.9 2,914.8 2,914.8 2,842.4 2,951.5 3,137.2 3,376.5 3,376.5 3,386.9 3,467.3 3,572.9 3,746.9 3,746.9
Property and equipment, net 373.1 350.8 322.4 301.0 301.0 275.9 259.5 245.6 233.8 233.8 298.7 353.9 400.8 440.7 440.7
Investment in Foundries 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Restricted Cash/ Long-term investments 897.4 975.9 1,132.4 1,097.1 1,097.1 1,350.9 1,350.9 1,350.9 1,350.9 1,350.9 1,350.9 1,350.9 1,350.9 1,350.9 1,350.9
Restricted investment in UMC
Investment in FlashVision / Flash Partners / Flash Alliance 1,467.6 1,511.7 1,600.8 1,507.6 1,507.6 1,477.1 1,552.1 1,627.1 1,702.1 1,702.1 1,802.1 1,902.1 2,002.1 2,102.1 2,102.1
Deferred tax assets 46.0 14.6 14.9 21.2 21.2 31.1 31.1 31.1 31.1 31.1 31.1 31.1 31.1 31.1 31.1
Deposits, Goodwill and other assets 96.0 99.8 165.8 160.1 160.1 156.3 152.8 149.4 146.0 146.0 142.6 139.2 135.7 132.3 132.3
Total asse ts 5,267.8 5,246.0 5,749.3 6,001.7 6,001.7 6,133.6 6,297.9 6,541.3 6,840.3 6,840.3 7,012.2 7,244.4 7,493.4 7,804.0 7,804.0

LIABILIT IES & SHAREHOLDER'S EQUIT Y


Current liabilities:
Additional short term debt 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
ST D / Current Portion of LT D 75.0 75.0 75.0 75.0 75.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Accounts payable 128.5 116.3 123.5 134.4 134.4 95.2 116.3 123.5 134.4 134.4 95.2 116.3 123.5 134.4 134.4
Accounts payable to related parties 299.9 246.7 292.7 182.1 182.1 143.0 143.0 143.0 143.0 143.0 143.0 143.0 143.0 143.0 143.0
Accrued compensation and benefits 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Deferred revenues 178.0 173.0 246.3 234.1 234.1 275.2 275.2 275.2 275.2 275.2 275.2 275.2 275.2 275.2 275.2
Income taxes payable 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Deferred tax 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
R&D liability, related party 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Other accrued liabilities 307.5 204.1 216.3 245.5 245.5 226.9 157.5 165.8 178.6 178.6 178.2 183.7 188.3 194.6 194.6
Total curre nt liabilitie s 988.9 815.2 953.8 871.1 871.1 740.3 692.0 707.5 731.3 731.3 691.6 718.2 729.9 747.3 747.3
Convertible subordinated notes 892.3 905.8 919.5 934.7 934.7 948.9 948.9 948.9 948.9 948.9 948.9 948.9 948.9 948.9 948.9
Other long term liabilities 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Deferred revenues 209.5 259.6 317.8 287.5 287.5 289.6 289.6 289.6 289.6 289.6 289.6 289.6 289.6 289.6 289.6
Total Liabilitie s 2,090.7 1,980.5 2,191.1 2,093.3 2,093.3 1,978.9 1,930.6 1,946.1 1,969.9 1,969.9 1,930.2 1,956.8 1,968.5 1,985.9 1,985.9

Minority inte re st (0.3) (0.9) (1.4) (1.9) (1.9) (2.4) (2.4) (2.4) (2.4) (2.4) (2.4) (2.4) (2.4) (2.4) (2.4)

Stockholders' equity:
Preferred stock, $.001 par value
Common stock, $.001 par value 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Additional paid-in capital 4,174.4 4,198.7 4,225.6 4,269.1 4,269.1 4,302.6 4,321.6 4,341.2 4,364.6 4,364.6 4,384.3 4,404.2 4,424.6 4,449.1 4,449.1
Retained Earnings / Loss (1,110.8) (1,058.3) (827.0) (487.5) (487.5) (252.8) (59.2) 149.1 401.0 401.0 592.7 778.5 995.4 1,264.1 1,264.1
T reasury stock, at cost / deferred compensation
Accumulated other comprehensive income (loss) 113.8 125.9 161.0 128.7 128.7 107.3 107.3 107.3 107.3 107.3 107.3 107.3 107.3 107.3 107.3
Total stockholde rs' e quity 3,177.1 3,265.5 3,558.2 3,908.4 3,908.4 4,154.7 4,367.3 4,595.2 4,870.5 4,870.5 5,082.0 5,287.6 5,524.9 5,818.1 5,818.1
Total liabilitie s and stockholde rs' e quity 5,267.8 5,246.0 5,749.3 6,001.7 6,001.7 6,133.6 6,297.9 6,541.3 6,840.3 6,840.3 7,012.2 7,244.4 7,493.4 7,804.0 7,804.0

Source: Company reports and J.P. Morgan estimates.

7
Harlan Sur North America Equity Research
(1-415) 315-6700 15 July 2010
harlan.sur@jpmchase.com

Table 5: SanDisk Cash Flow Statement


$ in millions
Flow Statement 1Q 09A 2Q 09A 3Q 09A 4Q 09A FY 09A 1Q 10A 2Q 10E 3Q 10E 4Q 10E FY 10E 1Q 11E 2Q 11E 3Q 11E 4Q 11E FY 11E
CASH FLO WS FRO M O PERATING ACTIVITIES:
Ne t Profit (loss) (208.0) 52.5 231.3 339.5 415.3 234.7 193.6 208.3 251.9 888.5 191.8 185.8 216.9 268.7 863.1
Ne t cash provide d by ope rating activitie s:
Deferred taxes 8.9 (6.6) 0.2 (15.4) (12.9) (60.6) 0.0 0.0 0.0 (60.6) 0.0 0.0 0.0 0.0 0.0
Foundry investment (gain) / loss
Depreciation and amortization 57.5 56.3 57.5 59.4 230.7 55.2 44.8 42.4 40.3 182.6 38.5 48.2 56.5 63.5 206.8
Allowance for doubtful accounts 2.2 (2.9) 2.5 (2.4) (0.7) (1.6) (1.6) 0.0
Non-cash restructuring and asset impairment charges 3.0 3.2 0.5 36.1 42.8 (20.3) (20.3) 0.0
Write-off of acquired in-process technology
Amortization of bond issuance costs 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Loss in equity investments
Equity in income of joint ventures
Net (gain) on divestitures and sale of assets 0.0 0.0 0.0
Compensation related to stock options / Other 16.3 22.4 19.4 (3.7) 54.3 24.0 17.0 17.6 21.4 80.0 17.7 17.8 18.5 22.5 76.5

Change s in asse ts and liabilitie s:


Accounts receivable 10.8 (38.8) (131.3) 47.7 (111.6) (0.1) (42.7) (27.2) (55.7) (125.7) 40.1 (8.8) (38.9) (67.8) (75.5)
Inventory 40.3 21.2 (98.7) 23.7 (13.5) 26.5 (41.1) (73.6) (136.2) (224.5) 105.5 (36.3) (92.9) (167.9) (191.6)
Prepaid expenses and other current assets 220.4 50.4 68.5 (14.3) 325.0 88.3 (145.4) 122.0 (22.1) 42.8 45.5 (145.4) 122.0 (22.1) 0.0
Deposits and other non-current assets 0.0 0.0 0.0
Accounts payable (182.6) (65.3) 53.1 (99.7) (294.5) (78.0) 21.1 7.2 11.0 (38.8) (39.2) 21.1 7.2 11.0 0.0
Accrued payroll (employee compensation and benefits incl 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Income taxes payable 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
T ax refunds receivable 0.0 0.0 0.0
Other current liabilities, related parties 0.0 0.0 0.0
Other accrued liabilites (83.1) (116.6) 35.5 17.2 (147.0) 60.3 (69.3) 8.3 12.8 12.1 (0.4) 5.5 4.6 6.4 16.0
Deferred income on shipments and deferred revenue 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Other non current liabilities, related party 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Other long-term liabilities 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
NET CASH PRO VIDED BY O PERATING AC TIVITIES (114.3) (24.3) 238.4 388.0 487.9 328.3 (22.1) 304.9 123.3 734.4 399.4 87.9 293.8 114.3 895.3

CASH FLOWS FROM INVEST ING ACT IVIT IES:


Purchases of short-term investments (168.9) (367.2) (701.8) (431.1) (1,669.0) (611.4) 0.0 0.0 0.0 (611.4) 0.0 0.0 0.0 0.0 0.0
Proceeds from sale of short term investments 458.7 204.7 285.1 276.9 1,225.4 261.0 261.0 0.0
Acquisition of property and equipment (16.5) (16.2) (10.7) (16.4) (59.7) (14.9) (25.0) (25.0) (25.0) (89.9) (100.0) (100.0) (100.0) (100.0) (400.0)
Acquisition of technology/ license 1.2 2.0 3.2 0.0 0.0
Proceeds from/Issuance of Notes receivables from FlashVision 289.8 1.5 55.5 62.8 409.5
Consideration paid / cash acquired in a business combination (7.5) (7.5)
Investment in FlashVision (Fabs 1 & 2) 0.0 0.0 0.0
Investment in Flash Partners and Alliance (Fab 3 + 4) (326.4) (7.5) (333.9) 0.1 (75.0) (75.0) (75.0) (224.9) (100.0) (100.0) (100.0) (100.0) (400.0)
Investment in foundries 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Sales of investment in foundries 0.0 0.0 0.0
Note receivable from Related Party / Issuance of Notes Receivable to Flash Ventures 0.0 0.0 0.0
Deposit in escrow for investment in foundries 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Proceeds from sale of fixed assets 57.1 57.1 15.8 15.8 0.0
Restricted cash 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
NET CASH USED IN INVESTING AC TIVITIES 238.0 (184.7) (379.4) (48.7) (374.8) (349.4) (100.0) (100.0) (100.0) (649.4) (200.0) (200.0) (200.0) (200.0) (800.0)

CASH FLOWS FROM FINANCING ACT IVIT IES:


Convertible subordinated notes 0.0 (75.0) 0.0 0.0 0.0 (75.0) 0.0 0.0 0.0 0.0 0.0
Issuance of common stock / Proceeds from Employee Stock P 4.6 1.7 7.7 6.9 20.9 18.0 2.0 2.0 2.0 24.0 2.0 2.0 2.0 2.0 8.0
Stock Repurchase
Net (payments to) proceeds from notes payable and borrowings 0.0 0.0 0.0
Cash distribution to minority interest
Other comprehensive income (loss) / T ax benefit of stock comp 0.0 0.0 0.0 2.2 0.0 0.0 0.0 2.2 0.0 0.0 0.0 0.0 0.0
NET CASH PRO VIDED BY (USED IN) FINANC ING ACT 4.6 1.7 7.7 6.9 20.9 (54.9) 2.0 2.0 2.0 (48.9) 2.0 2.0 2.0 2.0 8.0

Effect of changes in foreign currency exchange rates on cash (0.2) 1.7 1.3 1.7 4.4 (1.8) (1.8) 0.0
Change in cash and cash e quivale nts 128.0 (205.6) (132.0) 347.9 138.3 (77.9) (120.1) 206.9 25.3 34.3 201.4 (110.1) 95.8 (83.7) 103.3

Source: Company reports and J.P. Morgan estimates.

8
Harlan Sur North America Equity Research
(1-415) 315-6700 15 July 2010
harlan.sur@jpmchase.com

Analyst Certification:
The research analyst(s) denoted by an “AC” on the cover of this report certifies (or, where multiple research analysts are primarily
responsible for this report, the research analyst denoted by an “AC” on the cover or within the document individually certifies, with
respect to each security or issuer that the research analyst covers in this research) that: (1) all of the views expressed in this report
accurately reflect his or her personal views about any and all of the subject securities or issuers; and (2) no part of any of the research
analyst’s compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the
research analyst(s) in this report.
Important Disclosures

• Market Maker: JPMSI makes a market in the stock of SanDisk Corp.


• Client of the Firm: SanDisk Corp is or was in the past 12 months a client of JPMSI.
• Investment Banking (next 3 months): JPMSI or its affiliates expect to receive, or intend to seek, compensation for investment
banking services in the next three months from SanDisk Corp.
• JPMorgan Chase Bank, N.A (J.P. Morgan) is acting as an adviser to Samsung Electronics Company Ltd in identifying and reviewing
various strategic alternatives (including potential acquisition of SanDisk Corp). J.P. Morgan or one or more of its associates may
perform, or may seek to perform, other financial or advisory services for Samsung Electronics or its associates and may have other
interests in or relationships with Samsung Electronics or its associates, and receive fees, commissions or other compensation in such
capacities.

SanDisk Corp (SNDK) Price Chart

Date Rating Share Price Price Target


105 OW N $39 ($) ($)
18-Jul-07 OW 56.70 -
84 OW $54 UW $5 UW $11 UW $18 N $32 N $51 20-Oct-07 OW 44.11 54.00
11-Jan-08 OW 28.58 --
OW N UW $8 UW $6.5 UW $15.5 N $27 N $45 20-Mar-08 N 20.55 --
63
Price($) 22-Oct-08 UW 10.09 8.00
21-Nov-08 UW 5.32 5.00
42 22-Apr-09 UW 15.54 6.50
19-May-09 UW 14.45 11.00
21 28-Sep-09 UW 22.34 15.50
21-Oct-09 UW 23.53 18.00
29-Jan-10 N 28.78 27.00
0
Oct Jul Apr Jan Oct Jul
01-Mar-10 N 32.63 32.00
06 07 08 09 09 10 12-Apr-10 N 36.25 39.00
22-Apr-10 N 37.59 45.00
Source: Bloomberg and J.P. Morgan; price data adjusted for stock splits and dividends.
This chart shows J.P. Morgan's continuing coverage of this stock; the current analyst may or may not have covered it 23-Jun-10 N 47.08 51.00
over the entire period.
J.P. Morgan ratings: OW = Overweight, N = Neutral, UW = Underweight.

Explanation of Equity Research Ratings and Analyst(s) Coverage Universe:


J.P. Morgan uses the following rating system: Overweight [Over the next six to twelve months, we expect this stock will outperform the
average total return of the stocks in the analyst’s (or the analyst’s team’s) coverage universe.] Neutral [Over the next six to twelve
months, we expect this stock will perform in line with the average total return of the stocks in the analyst’s (or the analyst’s team’s)
coverage universe.] Underweight [Over the next six to twelve months, we expect this stock will underperform the average total return of
the stocks in the analyst’s (or the analyst’s team’s) coverage universe.] J.P. Morgan Cazenove’s UK Small/Mid-Cap dedicated research
analysts use the same rating categories; however, each stock’s expected total return is compared to the expected total return of the FTSE
All Share Index, not to those analysts’ coverage universe. A list of these analysts is available on request. The analyst or analyst’s team’s
coverage universe is the sector and/or country shown on the cover of each publication. See below for the specific stocks in the certifying
analyst(s) coverage universe.

Coverage Universe: Harlan Sur: Atheros Communications (ATHR), Broadcom Corporation (BRCM), Cavium Networks
(CAVM), LSI Corporation (LSI), Marvell Technology Group (MRVL), Mellanox Technologies (MLNX), NVIDIA
Corporation (NVDA)

9
Harlan Sur North America Equity Research
(1-415) 315-6700 15 July 2010
harlan.sur@jpmchase.com

J.P. Morgan Equity Research Ratings Distribution, as of June 30, 2010


Overweight Neutral Underweight
(buy) (hold) (sell)
JPM Global Equity Research Coverage 46% 42% 12%
IB clients* 49% 46% 31%
JPMSI Equity Research Coverage 44% 48% 9%
IB clients* 68% 61% 53%
*Percentage of investment banking clients in each rating category.
For purposes only of NASD/NYSE ratings distribution rules, our Overweight rating falls into a buy rating category; our Neutral rating falls into a hold
rating category; and our Underweight rating falls into a sell rating category.

Valuation and Risks: Please see the most recent company-specific research report for an analysis of valuation methodology and risks on
any securities recommended herein. Research is available at http://www.morganmarkets.com , or you can contact the analyst named on
the front of this note or your J.P. Morgan representative.

Analysts’ Compensation: The equity research analysts responsible for the preparation of this report receive compensation based upon
various factors, including the quality and accuracy of research, client feedback, competitive factors, and overall firm revenues, which
include revenues from, among other business units, Institutional Equities and Investment Banking.

Other Disclosures

J.P. Morgan is the global brand name for J.P. Morgan Securities Inc. (JPMSI) and its non-US affiliates worldwide. J.P. Morgan Cazenove is a
brand name for equity research produced by J.P. Morgan Securities Ltd.; J.P. Morgan Equities Limited; JPMorgan Chase Bank, N.A., Dubai
Branch; and J.P. Morgan Bank International LLC.
Options related research: If the information contained herein regards options related research, such information is available only to persons who
have received the proper option risk disclosure documents. For a copy of the Option Clearing Corporation’s Characteristics and Risks of
Standardized Options, please contact your J.P. Morgan Representative or visit the OCC’s website at
http://www.optionsclearing.com/publications/risks/riskstoc.pdf.
Legal Entities Disclosures
U.S.: JPMSI is a member of NYSE, FINRA and SIPC. J.P. Morgan Futures Inc. is a member of the NFA. JPMorgan Chase Bank, N.A. is a
member of FDIC and is authorized and regulated in the UK by the Financial Services Authority. U.K.: J.P. Morgan Securities Ltd. (JPMSL) is a
member of the London Stock Exchange and is authorised and regulated by the Financial Services Authority. Registered in England & Wales No.
2711006. Registered Office 125 London Wall, London EC2Y 5AJ. South Africa: J.P. Morgan Equities Limited is a member of the Johannesburg
Securities Exchange and is regulated by the FSB. Hong Kong: J.P. Morgan Securities (Asia Pacific) Limited (CE number AAJ321) is regulated
by the Hong Kong Monetary Authority and the Securities and Futures Commission in Hong Kong. Korea: J.P. Morgan Securities (Far East) Ltd,
Seoul Branch, is regulated by the Korea Financial Supervisory Service. Australia: J.P. Morgan Australia Limited (ABN 52 002 888 011/AFS
Licence No: 238188) is regulated by ASIC and J.P. Morgan Securities Australia Limited (ABN 61 003 245 234/AFS Licence No: 238066) is a
Market Participant with the ASX and regulated by ASIC. Taiwan: J.P.Morgan Securities (Taiwan) Limited is a participant of the Taiwan Stock
Exchange (company-type) and regulated by the Taiwan Securities and Futures Bureau. India: J.P. Morgan India Private Limited is a member of
the National Stock Exchange of India Limited and Bombay Stock Exchange Limited and is regulated by the Securities and Exchange Board of
India. Thailand: JPMorgan Securities (Thailand) Limited is a member of the Stock Exchange of Thailand and is regulated by the Ministry of
Finance and the Securities and Exchange Commission. Indonesia: PT J.P. Morgan Securities Indonesia is a member of the Indonesia Stock
Exchange and is regulated by the BAPEPAM LK. Philippines: J.P. Morgan Securities Philippines Inc. is a member of the Philippine Stock
Exchange and is regulated by the Securities and Exchange Commission. Brazil: Banco J.P. Morgan S.A. is regulated by the Comissao de Valores
Mobiliarios (CVM) and by the Central Bank of Brazil. Mexico: J.P. Morgan Casa de Bolsa, S.A. de C.V., J.P. Morgan Grupo Financiero is a
member of the Mexican Stock Exchange and authorized to act as a broker dealer by the National Banking and Securities Exchange Commission.
Singapore: This material is issued and distributed in Singapore by J.P. Morgan Securities Singapore Private Limited (JPMSS) [MICA (P)
020/01/2010 and Co. Reg. No.: 199405335R] which is a member of the Singapore Exchange Securities Trading Limited and is regulated by the
Monetary Authority of Singapore (MAS) and/or JPMorgan Chase Bank, N.A., Singapore branch (JPMCB Singapore) which is regulated by the
MAS. Malaysia: This material is issued and distributed in Malaysia by JPMorgan Securities (Malaysia) Sdn Bhd (18146-X) which is a
Participating Organization of Bursa Malaysia Berhad and a holder of Capital Markets Services License issued by the Securities Commission in
Malaysia. Pakistan: J. P. Morgan Pakistan Broking (Pvt.) Ltd is a member of the Karachi Stock Exchange and regulated by the Securities and
Exchange Commission of Pakistan. Saudi Arabia: J.P. Morgan Saudi Arabia Ltd. is authorised by the Capital Market Authority of the Kingdom
of Saudi Arabia (CMA) to carry out dealing as an agent, arranging, advising and custody, with respect to securities business under licence number
35-07079 and its registered address is at 8th Floor, Al-Faisaliyah Tower, King Fahad Road, P.O. Box 51907, Riyadh 11553, Kingdom of Saudi
Arabia. Dubai: JPMorgan Chase Bank, N.A., Dubai Branch is regulated by the Dubai Financial Services Authority (DFSA) and its registered
address is Dubai International Financial Centre - Building 3, Level 7, PO Box 506551, Dubai, UAE.
Country and Region Specific Disclosures
U.K. and European Economic Area (EEA): Unless specified to the contrary, issued and approved for distribution in the U.K. and the EEA by

10
Harlan Sur North America Equity Research
(1-415) 315-6700 15 July 2010
harlan.sur@jpmchase.com

JPMSL. Investment research issued by JPMSL has been prepared in accordance with JPMSL's policies for managing conflicts of interest arising
as a result of publication and distribution of investment research. Many European regulators require that a firm to establish, implement and
maintain such a policy. This report has been issued in the U.K. only to persons of a kind described in Article 19 (5), 38, 47 and 49 of the Financial
Services and Markets Act 2000 (Financial Promotion) Order 2005 (all such persons being referred to as "relevant persons"). This document must
not be acted on or relied on by persons who are not relevant persons. Any investment or investment activity to which this document relates is only
available to relevant persons and will be engaged in only with relevant persons. In other EEA countries, the report has been issued to persons
regarded as professional investors (or equivalent) in their home jurisdiction. Australia: This material is issued and distributed by JPMSAL in
Australia to “wholesale clients” only. JPMSAL does not issue or distribute this material to “retail clients.” The recipient of this material must not
distribute it to any third party or outside Australia without the prior written consent of JPMSAL. For the purposes of this paragraph the terms
“wholesale client” and “retail client” have the meanings given to them in section 761G of the Corporations Act 2001. Germany: This material is
distributed in Germany by J.P. Morgan Securities Ltd., Frankfurt Branch and J.P.Morgan Chase Bank, N.A., Frankfurt Branch which are
regulated by the Bundesanstalt für Finanzdienstleistungsaufsicht. Hong Kong: The 1% ownership disclosure as of the previous month end
satisfies the requirements under Paragraph 16.5(a) of the Hong Kong Code of Conduct for Persons Licensed by or Registered with the Securities
and Futures Commission. (For research published within the first ten days of the month, the disclosure may be based on the month end data from
two months’ prior.) J.P. Morgan Broking (Hong Kong) Limited is the liquidity provider for derivative warrants issued by J.P. Morgan Structured
Products B.V. and listed on the Stock Exchange of Hong Kong Limited. An updated list can be found on HKEx website:
http://www.hkex.com.hk/prod/dw/Lp.htm. Japan: There is a risk that a loss may occur due to a change in the price of the shares in the case of
share trading, and that a loss may occur due to the exchange rate in the case of foreign share trading. In the case of share trading, JPMorgan
Securities Japan Co., Ltd., will be receiving a brokerage fee and consumption tax (shouhizei) calculated by multiplying the executed price by the
commission rate which was individually agreed between JPMorgan Securities Japan Co., Ltd., and the customer in advance. Financial Instruments
Firms: JPMorgan Securities Japan Co., Ltd., Kanto Local Finance Bureau (kinsho) No. 82 Participating Association / Japan Securities Dealers
Association, The Financial Futures Association of Japan. Korea: This report may have been edited or contributed to from time to time by
affiliates of J.P. Morgan Securities (Far East) Ltd, Seoul Branch. Singapore: JPMSS and/or its affiliates may have a holding in any of the
securities discussed in this report; for securities where the holding is 1% or greater, the specific holding is disclosed in the Important Disclosures
section above. India: For private circulation only, not for sale. Pakistan: For private circulation only, not for sale. New Zealand: This
material is issued and distributed by JPMSAL in New Zealand only to persons whose principal business is the investment of money or who, in the
course of and for the purposes of their business, habitually invest money. JPMSAL does not issue or distribute this material to members of "the
public" as determined in accordance with section 3 of the Securities Act 1978. The recipient of this material must not distribute it to any third
party or outside New Zealand without the prior written consent of JPMSAL. Canada: The information contained herein is not, and under no
circumstances is to be construed as, a prospectus, an advertisement, a public offering, an offer to sell securities described herein, or solicitation of
an offer to buy securities described herein, in Canada or any province or territory thereof. Any offer or sale of the securities described herein in
Canada will be made only under an exemption from the requirements to file a prospectus with the relevant Canadian securities regulators and only
by a dealer properly registered under applicable securities laws or, alternatively, pursuant to an exemption from the dealer registration requirement
in the relevant province or territory of Canada in which such offer or sale is made. The information contained herein is under no circumstances to
be construed as investment advice in any province or territory of Canada and is not tailored to the needs of the recipient. To the extent that the
information contained herein references securities of an issuer incorporated, formed or created under the laws of Canada or a province or territory
of Canada, any trades in such securities must be conducted through a dealer registered in Canada. No securities commission or similar regulatory
authority in Canada has reviewed or in any way passed judgment upon these materials, the information contained herein or the merits of the
securities described herein, and any representation to the contrary is an offence. Dubai: This report has been issued to persons regarded as
professional clients as defined under the DFSA rules.
General: Additional information is available upon request. Information has been obtained from sources believed to be reliable but JPMorgan
Chase & Co. or its affiliates and/or subsidiaries (collectively J.P. Morgan) do not warrant its completeness or accuracy except with respect to any
disclosures relative to JPMSI and/or its affiliates and the analyst’s involvement with the issuer that is the subject of the research. All pricing is as
of the close of market for the securities discussed, unless otherwise stated. Opinions and estimates constitute our judgment as of the date of this
material and are subject to change without notice. Past performance is not indicative of future results. This material is not intended as an offer or
solicitation for the purchase or sale of any financial instrument. The opinions and recommendations herein do not take into account individual
client circumstances, objectives, or needs and are not intended as recommendations of particular securities, financial instruments or strategies to
particular clients. The recipient of this report must make its own independent decisions regarding any securities or financial instruments
mentioned herein. JPMSI distributes in the U.S. research published by non-U.S. affiliates and accepts responsibility for its contents. Periodic
updates may be provided on companies/industries based on company specific developments or announcements, market conditions or any other
publicly available information. Clients should contact analysts and execute transactions through a J.P. Morgan subsidiary or affiliate in their home
jurisdiction unless governing law permits otherwise.
“Other Disclosures” last revised March 1, 2010.

Copyright 2010 JPMorgan Chase & Co. All rights reserved. This report or any portion hereof may not be reprinted, sold or
redistributed without the written consent of J.P. Morgan.

11