SanDisk Sees Little Post-Quake Impact on Its Fabs
Smartphones and tablets are driving growth for iNAND flash memory and microSD cards, Sanjay Mehrotra, CEO of SanDisk, said on the company’s Q1 earnings call. “The smartphone market remains as vibrant as ever,” he said, citing analysts’ forecasts of 250 new models launching this year. OEM tablet activity “remains strong” and SanDisk is seeing requests for 16 gigabyte-and-higher capacities for embedded tablet solutions, he said.
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SanDisk and Toshiba’s joint-venture wafer fabs in Yokkaichi, Japan, suffered a “modest loss of supply” due to the downtime from the power outage following the earthquake, but the plant, 500 miles from the epicenter, wasn’t damaged, Mehrotra said. The earthquake halted normal fab operations for less than a day and it hasn’t been subject to rolling power outages or blackouts, he said. The company has been working closely with Toshiba and other business partners in Japan to minimize the impact on NAND flash wafer production, Mehrotra said. The company expects earthquake-related delays in tool deliveries from certain suppliers in Japan will cause a “slight reduction in 2011 plant captive supply growth” from the projected mid-80 percent range, he said.
The earthquake related outage was one of three power outages suffered by SanDisk operations in Japan recently. Responding to a question about the high incidence of power interruptions at SanDisk plants versus those of competitors’, Mehrotra said a Q4 2010 outage was due to a power glitch at the local utility. The outage, lasting “slightly above 100 milliseconds,” affected some of the company’s Fab 3 and Fab 4 equipment, he said. Another outage March 8 at the Fab 4 plant was the result of “human operator error” and the company took “corrective” training action, he said. The company took a $25 million charge related to the outages for the quarter, which included the cost of scrapped wafers, fixed costs associated with lost wafer output and costs to bring the fabs back online, said CFO Judy Bruner. Both fabs recovered fully by March 13, she said.
Current assessments show no immediate constraints of key materials, chemicals, gases or other consumables that could affect the wafer fab-related supply chain, Mehrotra said. Where SanDisk has identified potential future shortages, the company has been actively working to qualify and implement solutions, including alternative sources.
Amid the hype about the onslaught of tablets due on the market this year, industry watchers are keeping an eye on NAND inventory supply, according to Bruner. Regarding NAND inventories at SanDisk’s OEM customers, Bruner said, “Obviously, there’s a concern that non-Apple tablets might not sell well.” She said inventory levels held by customers are “fairly normal."
SanDisk’s 24-nanometer technology, utilizing 2-bits-per-cell and 3-bits-per-cell architectures, “continues to ramp well,” and is expected to account for the majority of captive output in the second half of 2011, Mehrotra said. The company doesn’t expect effects of the earthquake and tsunami to cause any “meaningful changes” to the ramp schedule of 24-nanometer or 19-nanometer technology. SanDisk last week announced it will begin sampling at the end of the month 2-bit-per-cell 64-gigabyte chips made on 19-nanometer technology for embedded and removable storage devices. The chips will go into mobile phones, tablets and other small-form-factor devices.
Mehrotra said SanDisk is “making progress” on modular SSDs due to growth in the ultra-thin portable computer market. The company plans to have a limited number of high-performance SSDs in the second half of the year. “For 2011, SSD will remain a small revenue contributor, but it becomes a larger opportunity for us from 2012 onwards,” he said.
For Q1 2011, SanDisk reported net income of $224 million, on sales of $1.2 billion versus $1.08 billion in Q2 2010.