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Technology Stocks : WDC/Sandisk Corporation
WDC 179.68-1.0%Dec 29 3:59 PM EST
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To: clix who wrote (28043)4/27/2005 12:25:40 AM
From: Bargain Hunter  Read Replies (1) of 60323
 
Re: FlashVision costs:

You asked:

1. Can this really be thought of as "investment"?

Yes. They are buying the fab as a tool for creating product. Most production equipment becomes obsolete eventually - it just happens sooner with chip equipment. They need to depreciate it fast enough to match.

2. Numbers have been mentioned about parts of these payments that will be off balance sheet. Does anyone understand this well enough to predict what, if any, portion of these payments will appear as COGS?

I'm guessing that the OBS portion will be financed in some way that doesn't add debt to the balance sheet. Maybe some kind of lease. Either the lease payments will be part of COGS or overhead. Choice should affect gross margin but not net margin.

3. It would appear that, given these numbers, most of the current cash on the balance sheet is spoken for.

When they held the secondary offering that raised much of this cash they stated that one of the primary purposes was for future fab investments. Anyone thinking of buying SNDK because it is sitting on a bunch of cash should understand that they are not about to get a special dividend. They need to decide whether management is making an appropriate investment that will generate enough future cash flow to make it worthwhile.

4. Am I missing something here, or is this the elephant in the room?

No elephant. Just a big empty building with chalk marks on the floor where the fab equipment will go.
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