Lexar Media’s 2nd-quarter loss narrowed to $5.1 million from $18....

to low-capacity memory cards. Revenue rose 16% to $189.3 million from $163.2 million a year ago -- but was down from $232.4 million in the first quarter due partly to a 20% decline in retail shipments, CFO Brian McGee told analysts in an conference call. Despite the downturn in retail shipments, sales of Lexar’s Kodak brand memory cards grew more than 25% during the quarter as retail distribution expanded to 23,000 stores, company officials said. Lexar sells its memory cards through 60,000 stores including those carrying Kodak, which it began selling last year. Product revenue rose 16% during the quarter to $188.3 million, while those from royalties declined to $1 million from $1.1 million a year ago. About 75% of Lexar’s revenue came through retail during the quarter, and the rest derived from component sales, McGee said. The average capacity sold at retail during the quarter was 316 MB, down 9% from the first quarter due largely to sales of low-capacity cards, McGee said. Gross margins improved to 15.1% from 12.3% in the first quarter and from 3% a year earlier as the one- time supplier payment provided a 5.7% boost, McGee said. Meanwhile, Lexar CEO Eric Stang said Toshiba will likely appeal a jury verdict earlier this year awarding Lexar $465 million. The Cal. Superior Court jury found after a 6-week trial that Toshiba stole flash memory trade secrets involving CompactFlash, Secure Digital, xD and NAND, and an appeal will likely push the case into 2006, Stang said. A Cal. superior court judge in July rejected Lexar’s request for an injunction barring the sale of Toshiba product (CED July 12 p5). Meanwhile, a separate patent infringement suit Lexar filed against Toshiba in 2002 is expected to go to trial in U.S. Dist. Court, San Jose, by late next year, Stang said. Toshiba filed suit in Nov. 2002, seeking a court ruling that it didn’t infringe Lexar’s patents, but a month later dropped allegations that the patents were unenforceable. Lexar also is in discussions with a “number of parties” regarding the “broad applicability at the system level” of its patents to flash-based devices, flash memory cards and digital audio players, Stang said. Excluding legal expenses, Lexar broke even in the 2nd quarter, he said. As Lexar’s operating expenses rose during the quarter to $27.9 million from $23.3 million, it’s working to lower packaging and fulfillment costs and recently hired a U.S.- based packaging company, Stang said. Lexar also has established its Singapore operations as the “hub” for its Asian business, he said. Lexar reorganized its marketing organization, appointing an executive for each of the company’s business units and creating a “centralized planning team,” Stang said. Noting that NAND flash memory supply will be tight this fall, Stang said Lexar is weighing adding suppliers including Hynix and Micron. Samsung is Lexar’s primary vendor of NAND and it will add the S. Korean manufacturer’s new 4 gigabit, 70-nanometer memory this fall, Stang said.