SanDisk Halts Expansion at Flash Memory Plant Amid Weak Demand
SanDisk halted expansion of its Fab 5 NAND flash memory plant due to weak customer demand and “accelerated price declines” in Q4, CEO Sanjay Mehrotra said on a conference call. The 24-nanometer Fab 5 plant in Yokkaichi, Japan, which started production in Q3 and added about 10 percent to SanDisk’s manufacturing capacity, will restart expansion no sooner than July, having originally targeted May, said Chief Financial Officer Judy Bruner.
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The delay follows 13 of SanDisk’s mobile OEM customers lowering their forecast for NAND purchases in Q4 as demand for their products -- notebook PCs, tablets and smartphones, declined, Mehrotra said. SanDisk has installed equipment for about 30 percent of phase one production at Fab 5, he said. Among SanDisk’s customers are Samsung, which has used the company’s NAND in notebook PCs, and Apple for the iPod Nano.
In addition to weakening demand, SanDisk’s Q4 per gigabyte average selling price fell 13 percent from Q3, with much of the decline late in the quarter, Bruner said. Eight gigabyte products had the sharpest decline, she said. “The pause in expansion is longer than previously planned, and is designed to achieve the best balance between prudent capacity expansion and leveraging the growth opportunities ahead of us,” Mehrotra said.
The Yokkaichi factory is key to SanDisk’s plans to move the majority of its NAND manufacturing to 24 nanometers, while adding 19 nanometer, which started production in Q4 and will ramp throughout this year, Mehrotra said. SanDisk shipped its first 19-nanometer products late last year in 64 GB USB drives using X3 3-bit per cell technology and is sampling 19-nanometer embedded flash in 64 GB iNAND Ultra for smartphones and tablets, a company spokesman said. With the slowing Fab 5 expansion, the growth of SanDisk internal bit supply this year is expected to be less than the 77 percent achieved in 2011 and analysts have pegged industrywide growth at 70-75 percent, Mehrotra said. SanDisk’s 2012 capital spending will be $1.1-$1.6 billion depending on the restart of expansion at Fab 5, Bruner said.
SanDisk will expand its solid-state drive (SSD) business this year, doubling it to about 10 percent of total revenue by year-end. The technology could account for 25 percent of the company’s total sales “within a few years,” Mehrotra said. With growth in SSD, SanDisk’s 3-bit per cell technology will likely be less than the 50 percent of the company’s product mix it achieved in 2011, Mehrotra said. X3 technology is largely used in SanDisk’s memory cards and some embedded products, he said. SanDisk SSD business consists of enterprise, much of which stems from its acquisition of Pliant in May, and consumer. Samsung deployed SanDisk’s SSDs in consumer products in a Chromebook notebook and Asus in Zenbook Ultrabook PCs. SanDisk’s SSD segment could hit an “inflection point” this year as flash memory prices dip below $1 per gigabyte, Mehrotra said. The consumer SSD market is expected hit $10 billion in sales by 2015, up from $3 billion in 2011, SanDisk officials said.
SanDisk also is continuing development of rewriteable 3D flash Bit Cost memory (BiCS) chips, technology it acquired in buying Matrix Semiconductor in 2005. SanDisk made “good progress” in developing the BiCS in 2011, but is “a few years away” from production, Mehrotra said. “We think we have a couple generations ahead of us in terms of scaling NAND flash,” before BiCS comes into play, Mehrotra said.
SanDisk’s Q4 profit narrowed to $281.2 million from $485.5 million a year earlier as revenue increased to $1.57 billion from $1.32 billion. The company’s gross profit margin narrowed to 42 percent from 43.4 percent. Product revenue jumped to $1.47 billion from $1.24 billion, while license and royalty rose to $103.4 million from $86.5 million. OEM accounted for 63 percent of SanDisk’s Q4 sales and retail for 37 percent, Bruner said. R&D costs increased to $147.2 million from $112.5 million. Due to the weak demand, SanDisk projected Q1 revenue of $1.3-$1.35 billion, short of the $1.46 billion forecast by analysts. Full-year revenue is expected to be $6.2-$6.6 billion, below analyst estimates of $6.66 billion.