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Technology Stocks : WDC/Sandisk Corporation -- Ignore unavailable to you. Want to Upgrade?

To: Artslaw who wrote (21340)	12/18/2001 9:53:55 PM
From: Ausdauer	Read Replies (2) \| Respond to of 60323

Conference Call I am probably being too harsh, but here goes. My take, FWIW... 1) The conference call was scheduled to accomodate only the analysts that follow the company. Individual SanDisk shareholders had no opportunity to participate "live" due to the unusual timing of the press release at 2:01 am in the morning. This leads one to believe that SanDisk was caught off guard and was rushed into explaining the sequence of events leading to the decision to abandon Dominion. Could one conclude either that they did not anticipate the move (although Eli suggested during the c.c. that rumors started several weeks ago) or that SNDK knew Dominion was on the chopping block, but decided not to disclose this information earlier? Certainly the discussion during the last SNDK c.c. did not suggest that this shift in plan was imminent. 2) Another conclusion I came to in reflecting on the events that unfolded was that Toshiba and SanDisk's plan to build out capacity in Virginia was ill-conceived, overly optimistic and based on expectations of growth that would follow the trajectory of 1999 and 2000 when sales figures were artificially bloated by double orders at a time when SanDisk scrambled to create additional capacity at UMC. (Eli's statement from Q4 1999 --"We could have shipped more, but we didn't have any more product." -- rings through here.) Further, the original conception of FlashVision seems to have discounted the production capacity and prowess of competitors like Samsung and Hitachi. Dominion appears to have been a short-lived experiment. 3) Toshiba and SanDisk wish to recreate their production lines after the Korean manufacturing model where SRAM, DRAM and flash are all manufactured under one roof, costs are depreciated over a large number of wafers of varying type, and operating expenses are kept to a bare minimum. This represents the realization that Dominion was redundant and doomed to fail in the present market place. It would seem that Eli came to this realization relatively recently given the fact that he stated during the Q3 conference call that Toshiba/SNDK seemed to have the lowest cost structure for flash manufacture. He recanted earlier statments and now suggests that the cost of running a full-fledged fab in Yokkaichi with a mirrored manufacturing plant in Virginia (that trailed leading edge techniques by 3 to 6 months) was not the low cost model that the FlashVision founders once imagined. 4) SanDisk abandoned a fabless model and there is no turning back. There must be some concern on Toshiba's part that proprietary manufacturing techniques could be disclosed to competitors if fab space were contracted in Taiwan. I think it is unlikely that SanDisk will fall back on UMC for production of NAND that includes technology created by Toshiba. 5) Toshiba calls the shots. Toshiba assumes the cost for calling the shots. SanDisk follows Toshiba's lead. SanDisk is the marionette and Toshiba is the puppet master. Eli outlined several points in the conference call... *The updated MoU (Memorandum of Understanding) actually fortifies SanDisk's relationship with Toshiba. The bond is strengthened. Dominion was conceived mainly as a production facitility. The intellectual union of these two companies is still intact and their futures are more intimately intertwined as a result of the decision to scuttle Dominion. The cost structure of a single manufacturing facility in Japan will be superior to two geographically separate, parallel fabs. Capacity will be adequate given the present inventories and production rates in Yokkaichi. There should be no disruption in SanDisk's supply to its customers during the transition period. SanDisk will not incurr and significant costs related to the decision to move to Japan. $650 million of the investment in Dominion is in semiconductor manufacturing equipment. Toshiba is footing the bill to move this machinery to Japan. (Given the fact that Toshiba idled DRAM production in Virginia it was no longer possible to run FlashVision economically.) SanDisk hopes to recognize significant production efficiencies in Q3 and Q4 of 2002. Once in place, the consolidated effort in Yokkaichi will be a lower cost producer than the Yokkaichi/Dominion model. DRAM producers are all experiencing huge quarterly losses. Consolidation is the word of the day. Utilizing the depreciated cost structure of Yokkaichi is advantageous to SanDisk. The fab equipment at Dominion is leading edge and will suupport geometries to 0.13 micron and below. *Eli seemed to be happy to end the c.c. as early as possible. His tone was generally dressed down, although he seemed amused by some of the questions the analysts had. Most of these question were geared to % reductions in cost at various stages. More interesting questions may have been more open-ended, like... "How do you feel about the agreement?" I would appreciate hearing the opinions of others. Despite all the uncertainty the market has not penalized us so far and the action of the stock in the weeks leading up to this announcement indicates that the market, for the time being, is tipping its hat to the latest agreement. Only time will tell. Aus