Judy, I do not think that bankruptcy is in the cards, unless Veba decides not to throw "good money after bad money". Right now, under existing lines of credit WFR can still borrow about $156 MM, but they have commitments of close to $100 MM for the rest of the year (which they could delay, I presume) in capital expenditure. In the next quarter, if things do not improve and they indeed come in with sales under $165 MM for the quarter, they could lose close to $60 MM give or take $10 MM (they are supposed to have some "savings" from the restructuring, if memory serves about $60 MM annually, and they said that 1/2 of that would be in the third quarter, but I doubt it). That means that they will have to find at least another $50 MM or so for the last quarter (if they continue with their capex).
What worries me, however, is their receivables (about $140 MM or so), typically they have only $4 to $5 "doubtful" accounts, but with their very large exposure in Korea and Malaysia, we could have a nasty surprise, like one of their customers folding and leaving WFR holding the bag for some $20 to $40 MM, that will definitely put them in a bind. The reason I do not think that they will go under is that VEBA has a strategic goal to stay in that business and would rather play the poker game until some of the competitors close some capacity, until the 300 mm program starts to pay off (and I estimate that WFR has more than $200 MM in that program). Veba has in the past advanced some major cash to WFR and could do it again. If WFR was an independent company, they probably would be on their death bed by now.
On the positive side, we are in the midst of the worth and longest contraction in the semi business. Actual Si real estate produced has shrinked (I think by about 5%, if memory serve), and if the old trend reestablish itself, WFR (if it survives) should have quarterly sales around $300 MM with margins around 10% (they had margins in the past in excess of 15%) and probably around 25% for their 300 mm line. Thus, one can make a case (more so than for MU) that sometime in the next two years, visibility of pretax earnings (and they will have a little tax sabbatical after all this red ink) of $3 share. Having said that, the rumblings of VEBA considering selling WFR (denied recently by VEBA) are worrysome, and until the stock itself shows some technical strength, I would still stay away. Buying here is an exercise in catching a falling knife, and as I have stated many times before, I would not start considering buying until after late October or if we get a true volume/price reversal event.
Zeev |
