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SanDisk sells Toshiba joint venture capacity, saves $1B
Despite widely acknowledged falling memory prices, Toshiba welcomes the capacity and estimates that the NAND flash memory market will grow in the medium to long term with average annual bit growth rate of more than 200%.
By Suzanne Deffree, Managing Editor, News -- Electronic News, 10/20/2008
SanDisk Corp has entered into plans to sell Toshiba Corp approximately 30% of the current manufacturing capacity from the two companies' joint ventures, Flash Partners and Flash Alliance.
Per the agreement, SanDisk and Toshiba will continue to be equal partners for the joint ventures' remaining 70% capacity of the fabs, specifically Fab 3 and Fab 4 at Toshiba’s Yokkaichi Operations in Japan.
Investment in the manufacturing equipment installed at the two fabs is equally shared by Toshiba and SanDisk through the two joint ventures. SanDisk said it will have the option to purchase a part of the transferred capacity from Toshiba on a foundry basis and will continue to invest up to 50% in future Fab 4 expansions and technology transitions in Fabs 3 and 4.
Further, the companies said they will continue their existing joint technology development in advanced NAND and 3D read/write memory.
The announcement follows an unsolicited and rejected bid for SanDisk from flash rival Samsung. Had Samsung succeeded in the acquisition attempt, how it would work with Toshiba through the SanDisk-set joint ventures would have been in question.
increasing production costs. Indeed, just last week Micron Technology announced it would buy Qimonda's stake in its Nanya Technology DRAM manufacturing joint venture, Inotera Memories, and would thus reallocate investment in a separate manufacturing joint venture with Nanya. Outside the memory realm, AMD announced it would spin out its manufacturing operations into a new company in an effort to cut costs.
Today's move, initiated by SanDisk, will significantly reduce the Milpitas, Calif-based company's capital spending, giving it much needed cash and reducing its equipment lease obligations by approximately $1 billion.
“We appreciate Toshiba’s strong support for SanDisk through this agreement. This is expected to reduce our capital spending, strengthen our financial position, and increase our business flexibility while maintaining the economies of scale of Fabs 3 and 4,” said Eli Harari, SanDisk's chairman and CEO, in a statement.
The capacity announcement was made just hours before SanDisk is scheduled to report Q3 earnings, slated for after market close today. Betsy Van Hees, an analyst at Caris Company, expects the memory maker to announce revenue of $765 million, down 6% sequentially and below Street estimates for revenue of $782 million, on weaker than expected unit demand, lower quarter-over-quarter bit growth, and sharp quarter-over-quarter declines in retail card prices and MP3 players.
"We look for management to provide a dim Q4 outlook and guidance below our already Street low estimates due to the continuing over-supply of NAND dampening ASPs and gross margin and the limited visibility from the weakening global consumer," she said in a research note this morning.
According to Van Hees, NAND contract prices posted deep declines in Q3 with 16Gb MLC NAND contract ASPs (average selling prices) dropping more than 40%. "Checks indicate blended retail memory card ASPs fell about 25% quarter over quarter as memory card manufacturers dropped prices in hopes of enticing the consumer to purchase higher density cards," she reported. "We expect NAND and retail memory card blended ASPs to decline about 20% and 15% respectively in Q4."
Toshiba said in a statement on the capacity agreement that it believes the NAND flash memory market will continue to grow in the medium to long term with average annual bit growth rate of more than 200%, supported by such established applications as cellular phones and digital camcorders, and by emerging applications such as SSDs (solid state drives) for notebook computers and servers.
"Sole ownership of some 30% of the total capacity of the two fabs will allow Toshiba to be even more flexible in making decisions on production volumes in line with changes in market demand," the company said.
The transaction is expected to be completed in Q1 2009. Neither company detailed what the total capacity of the two joint ventures currently is, nor did they specify the sale price for the 30% capacity.
