Replies to post #579545 on Zeev's Turnips Patch-No Politics (ZEEV)

[Zeev Hed]

Just added some FTK here at 18.10.

[sylvester80]

From SNDK Yahoo: Hynix to shut down NAND plant M9!!! That's 37% of their NAND capacity!!!

Credit Swiss today's news on Hynix
"Hynix plans to entirely retire the M9 (which is 37% of company's NAND capacity), largely within 1Q08, according to the company. Although some of the capacity would move to M8 (another NAND fab), oversupply can easily disappear as half of M9 would also account for 3-4% of global supply."
(Thanks to Shlomi Cohen)

M9 is their 200mm production facility. So SNDK's CEO who said that 200mmm plants can not compete and would have to be closed is being proven right. Just like that, NAND oversupply can disappear.

[sylvester80]

SNDK Preview: A Difficult Quarter?

By Bob Faulkner
RealMoney Contributor
1/25/2008 4:26 PM EST
http://www.thestreet.com/p/_yahoo/rmoney/technology/10400549.html

SanDisk (SNDK - commentary - Cramer's Take - Rating) is scheduled to report its fourth-quarter 2007 results Monday, Jan. 28, after the close, with a conference call at 5:00 p.m. EST. Current Street consensus estimates are for revenue of $1.27 billion (up 9% year over year and 22% quarter over quarter) and pro forma EPS of 64 cents.

In the prior quarter, revenue was $1.04 billion (up 38% year over year and 25% quarter over quarter), and pro forma EPS was 38 cents. Product revenue (about 90% of total) increased 36% year over year and 28% quarter over quarter.

The pro forma gross margin on products in the period was 26.4%, down 630 basis points year over year but up 760 basis points vs. second quarter. Higher volumes and normal pricing were the contributors to gross-margin improvements. The operating margin was 25.7%, up 980 basis points from last year's levels and more than 1,000 basis points quarter over quarter. The operating margin benefitted from lower SG&A as well as a credit from the asbestos litigation settlement.

Cash from operations was about $870 million, or double the prior year's level. The cash account increased about $100 million after a dividend increase and the repurchase of 5 million shares. Accounts receivable increased about $80 million, adding one day to days sales outstanding (51 days). Inventory dropped about $10 million, reducing days of inventory by six days (74 days).

Within its two principal business segments, retail (about two-thirds of revenue) was $608 million, up 36% year over year and 25% quarter over quarter. Retail megabytes shipped increased 46% quarter over quarter, with ASPs down 14%. OEM revenue was $311 million, up 37% year over year and 33% quarter over quarter. Megabytes shipped to OEMs increased 82% from second quarter, with ASPs down 26%.

Management guided product revenue in to be in the $1.05 billion to $1.20 billion range, with royalty revenue about flat. The pro forma gross margin was expected to be in the 27% to 30% range, with operating expenses of $240 million to $250 million and a tax rate of 34% to 35%. Back-of-the-envelope math puts EPS at about 63 cents to 64 cents.

There is a little-watched aspect of the company's financials that has just become public during this past year. SanDisk takes a reserve against revenue for price protection and promotions. From the four quarters of available data, that reserve has been at a high of 78% of revenue (first quarter 2007) to a low of 42% of revenue (third quarter 2007).

The extremely high level of reserve suggests that there is an extraordinary level of price and competitive pressure within the market. Given the fact that, at the OEM level, contract prices were down more than 50% sequentially during fourth quarter, will we see that reserve level spike up? That, coupled with the mixed commentary from retailers, may suggest that the anticipated "upside" in fourth-quarter results may be a difficult hurdle.

On the conference calls, here are the keys on which I will be focused:

production growth, megabytes shipped and ASPs;

product margins;

capital spending plans and time frame;

price protection and promotion reserves (in past quarters, the reserve has not been disclosed until the appropriate SEC filings take place);

mobile memory card and USB growth rates; and

outlook for production, ASPs, revenue and margins
While fourth-quarter contract prices certainly contributed to the 56% drop in SanDisk's stock price from early September, there is nothing to suggest that NAND prices will be improving in the next quarter or two either.

SanDisk is one of the many technology and telecommunications stocks that Bob Faulkner monitors and discusses in The Telecom Connection.