Jeff, don't confuse the writedown of the fab with the shutdown or sale of the fab.
I agree, if they sell the fab soon, they will have to enter into some kind of production agreement with the buyer until everything is transferred to Yamaha and/or to act as a second source until they can qualify one of the other fabs.
If they take a writedown of the fab, the existing production will go on. The accounting will only effect the operating profit going forward. As you said, by year end they will still be producing somewhere around 1/2 of their chips in Milpitas. The cost of those chips will be very high as these chips will have to absorb all the Milpitas costs.
As part of a restructuring charge / writedown, they could take enough of those costs at the time of the writedown, to allow for a normal gross margin on the last chips to be produced in Milpitas.
The issue for them is that in order to take the writedown, they have to be in a position where they are not going to need the fab 12 months from the writedown.
A writedown in Q3 would be bullish. It would mean that they expect full production from Yamaha and to have a least one other fab qualified and up and running as a second source by 9/30/00. If they have any doubt this can happen, then we will not see the writedown in Q3.
I personally think that the lack of a writedown in Q3 would be a disappointment for the short-term. With a restructuring charge to get the final production off the Milpitas fab to a normal gross profit level and a little sequential sales growth in Q4, they could earn $0.13 - $0.15 in Q4 1999. Without it, they earn something in the $0.03 - $0.05 range. |
