SanDisk posts loss, hints at more restructuring

Flash memory card maker says it is still open to a Samsung offer and hinted at more restructuring to come.

SanDisk said it is still "open" to a Samsung buyout offer and hinted at more restructuring to come, as the largest supplier of retail flash memory cards reported a third-quarter 2008 net loss of $155 million on Monday.

The loss was significantly worse than the net income of $85 million reported in the third quarter of 2007. SanDisk and other flash memory chip suppliers have been hit by a steep price decline in flash.

Operating loss, on a GAAP basis, was $250 million, compared to GAAP operating income of $109 million, in the third quarter of 2007.

The Milpitas, Calif.-based company said the average price per megabyte sold declined 63 percent on a year-over-year basis and 30 percent sequentially.

SanDisk also hinted at more restructuring. Despite announcing an agreement with Toshiba on Monday that will help SanDisk's bottom line, CFO Judy Bruner spoke about more restructuring to come. In response to a question about operating expenditures, she said: "We're taking actions that we believe are quite aggressive and will cause us to make some pretty tough choices in the business." And later added: "We have not finalized yet our restructuring actions."

Eli Harari, chairman and CEO, however, said that the Toshiba deal should help it survive further market declines. "What the (agreement) does, if it gets really ugly, we have the balance sheet to survive that kind of environment," Harari said. "This is a very, very important factor."

Regarding the buyout bid from Samsung disclosed in September, Harari reiterated that his company is "open to a transaction at the right price, (with) the right process, and the right protections for SanDisk's shareholders."

But he also restated that the offer of $26-per-share is far from adequate. "Samsung significantly undervalues (SanDisk) in light of the value of our IP (Intellectual Property) to Samsung. Samsung stands to gain enormous value from owning our patents and our know-how."

(Correction: the offer was $26 per share not $36 as originally stated.)

"Owning these patents and know-how is so critical for Samsung's future profitability," he said. Specifically, Harari said that Samsung needs technologies like X4--which will allow SanDisk to make higher density flash memory that uses four bits per cell. To date, most flash memory suppliers have offered chips with one or two bits per cell.

The company also spelled out its 2009 roadmap. By the end of this year two-thirds "of bit production" will be on a 43-nanometer manufacturing process, with 32nm planned for the second half of 2009. Shipment of chips with X4 technology is expected in first half of next year.

By the first quarter of next year, SanDisk will be shipping 32-gigabit NAND flash chips and in the second quarter, 64Gb chips. This would allow SanDisk to ship Secure Digital (SD) flash cards with capacities of 64 gigabytes and up. Currently, the largest-capacity SD card it offers is 32GB.

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