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SanDisk cuts capex again for 2009
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With economic recovery uncertain, SanDisk has made a ‘tactical assumption,’ according to CFO Judy Bruner at an investor conference today, that the recovery in the world economy will not occur in 2010. Accordingly, the NAND flash memory supplier will cut capital spending to US$900 million in 2009 and reduce its workforce in the current fourth quarter by 10% to preserve cash.
As SanDisk is primarily dependent on consumer markets, the memory supplier has seen a drastic fall in demand at a time when it has been ramping capacity aggressively with JV partner Toshiba over the last three years. NAND flash ASPs have declined by 60% per annum for the last three years due to continued overcapacity in the market as major competitors such as Samsung and Hynix continued their own aggressive expansion plans and IMFT, the JV between Intel and Micron, also entered the market aggressively.
SanDisk has now cut its CapEx plans twice in 2008. Initially, SanDisk expected to spend approximately US$3 billion in 2009 as it ramped Fab 4 to capacity of over 230,000wspm. However, SanDisk revised that figure in October 2008 to only US$1.3 billion, with the Fab 4 expansion put on hold until the market recovered. Spending would therefore be focused on technology node migrations at Fab 3 and Fab 4. Also, approximately US$300 million of the revised spending plan would be attributed to de-bottlenecking back-end test and assembly operations.
At the Barclays Capital investor conference, Bruner said that CapEx had been further reduced to only US$900 million in total. Back-end spending would also be cut.
As the credit markets tightened, raising funds for expenditures would prove increasingly difficult, noted Bruner, especially in the Japanese operating leases market in 2009, which the company had been using for capacity expansions. This would lead to SanDisk using both working capital and approximately US$600 million in cash to meet CapEx plans in 2009.
Bruner also noted that it did not expect to start the second phase of Fab 4’s capacity expansion until the ‘tail-end' of 2009. Its equipment set required for the roll-out of its 3D one-time programmable devices had also been put on hold.
