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Company Financials for 4Q08. Not Good

Comments(0)Memory Makers lose $8.8B in 4Q2008, to bring annual losses to $20B: Memory companies lost about 85 cents for every dollar of sales in 4Q08, and, for certain, there’s a lot more bad news coming in 1Q09. According to our survey and analysis, memory makers lost about $20B in 2008, on total revenues of $56B; taking into account transfers from foundry partners to their parents for resale, memory product sales to end customers totaled about $46B, down from about $58B in 2007, despite GB growth for NAND of more than 135% over 2007, and of DRAM by more that 66% vs. 2007.

(Denali tracks companies which make memories. In some cases, those companies also make other non-memory products. We separate the memory portion of sales and profits where it can be done with some confidence, but there remain two complicating factors: (1) Atmel, Cypress, ISSI, SST, Winbond, Macronix and some others, have non-memory products for which we cannot separate P& L, and (2) There are some significant transfers between foundries and their principal customers...PSC to Elpida, Nanya/Inotera to Micron, ProMOS to Hynix, etc., which result in double-counting some revenues when reported sales are used in the summaries. In this case, the losses are strictly cumulative, while the sum of the revenues exceeds the end-market total by the amount transferred within the memory makers community. Therefore, the sum-of-the-company sales are not necessarily representative of the total business volume to the end market.)

When the financial results for 4Q08 for the 25 or so companies that make memories are totaled up, we found that they lost about $8.8B on sales of $11B. While DRAM makers had bled to death all year, NAND makers weakened markedly in 3Q and on into 4Q, when prices dropped about 15%, on the back of 3Q’s drop of 30-35%. (Rising NAND prices did not gain traction until the very end, and have been sustained into 2009).

We calculate that NAND flash makers took losses of about $3.3B in 4Q08, on sales of only $2.4B, and no vendor escaped red ink...which included sizable write-offs from SanDisk and Toshiba.

In the context of this discussion, losses include costs of decommissioning fabs, operating losses, inventory write-downs, ‘asset impairment’ charges. In their usual year-end clean up and resignation that things are really, and irreversibly bad, the fourth quarter is frequently a catch-all for the financial sins of the year before. Those charges aside, however, 4Q08 was without question the largest money losing quarter for memory makers ever, though we will have to wait a few more weeks to see how long the record will last. ..maybe not that long.

Company Financials 2008 All Values in Millions of US Dollars BOLDFACE entries are Denali Estimates


    Sales         Sales Sales
Company   4Q08 3Q08 2Q08 1Q08   2008 2007
                 
Atmel   335 400 421 411   1567 1639
Cypress   166 223 210 168   767 1597
Elpida   651 1087 1040 845   3623 3965
Etron   38 63.4 62.3 76   239.7 436
GSI   14 17.1 17.3 15.2   63.6 52
Hynix   1110 1642 1864 1667   6283 9302
Inotera   252 342 313 280   1187 711
Intel Flash OP notes notes notes 497   497 2102
IDT   167 201 188 177   733 811
ISSI   37.7 55.3 58.5 58   209.5 247
Macronix   170 240 168 156   734 744
Micron   1402 1449 1498 1359   5708 4693
Mosys   4.0 4.1 3.2 2.8   14.1 11
Nanya   187 365 308 291   1151 1613
Numonyx   390 480 500 (ST+Intc)   1370 notes
Powerchip   171 475 563 473   1682 2360
ProMOS   127 246 307 247   927 1458
Qimonda   275 500 594 625   1994 4115
Rambus   37.6 29.4 35.7 39.7   142.4 180
Samsung   2412 3161 3779 3472   12824 16043
SanDisk   864 821 816 850   3351 3778
Spansion   480 631 613 570   2294 2476
ST Micro   notes notes notes 299   299 1364
SST   58.4 92 84 97.5   331.6 412
Winbond   115 161 207 209   692 980
                 
Sum   9464 12685 13650 12885   48684 61089
Others   1550 1930 2000 2000   7480 8500
Total   11014 14615 15650 14885   56164 69589


 



    Profits         Profits Profits
Company   4Q08 3Q08 2Q08 1Q08   2008 2007
                 
Atmel   -24.4 -4.7 -4.9 6   -28 48
Cypress   -42.4 -35.4 7.4 -25.6   -96 63
Elpida   -761 -305 -131 -273   -1470 142
Etron   -5.5 -3.4 -6.0 -0.9   -16 39
GSI   1.5 3.6 3.0 2.8   10.9 5.4
Hynix   -978 -1491 -698 -705   -3872 377
Inotera   -200 -129 -105 -133   -567 -101
Intel Flash OP notes notes notes -500   -500 -1066
IDT   -345 11.7 39.2 17.1   -277 11
ISSI   -4.1 -2.5 2 2   -2.6 11
Macronix   25 67.3 27.4 24.5   144 143
Micron   -706 -344 -236 -772   -2058 -697
Mosys   -6.3 -3.2 -4.6 -4.3   -18.4 -4
Nanya   -316 -278 -235 -280   -1109 -209
Numonyx   -250 -200 -325 (ST+Intc)   -775 notes
Powerchip   -750 -476 -245 -310   -1781 -391
ProMOS   -250 -256 -181 -256   -943 -113
Qimonda   -650 -500 -621 -732   -2503 -1402
Rambus   -10.7 -27.9 -145 -12.6   -196 -21
Samsung   -485 -54 29 -31   -541 1237
SanDisk   -1865 -155 -67.9 17.9   -2070 219
Spansion   -200 -119 -101 -118   -538 -252
ST Micro   notes notes notes 16   16 -51
SST   -9.9 4.9 -9.6 -1.3   -15.9 -50
Winbond   -105 -28 -41.2 -56   -230.2 -141
                 
Sum   -7938 -4325 -3049 -4124   -19436 -2203
Others   -850 -350 -125 100   -1225 150
Total   -8788 -4675 -3174 -4024   -20661 -2053


 


Exchange rates used in conversions (per US$)
    Won Yen NT$ Euro
1Q   962 105.8 31.4 0.659
2Q   1040 105.0 31.0 0.646
3Q   1120 104.5 31.5 0.676
4Q   1360 95.0 32.8 0.750



Notes:
"Others" include Sony, Matsushita, Renesas, Toshiba, Fujitsu, NEC, Elite Semi., G-Link, Alliance Semi, Sharp
Profits = divisional operating profits for Samsin, STMicro, Intel; profits are after-tax profits for all others
Mosys, SanDisk, SST, Saifun and Rambus include substantial IP licensing revenues as % of sales;
Intel and ST Micro combined their flash businesses (NOR + ST's NAND) into Numonyx, effective 1 April 2009
Qimonda has not reported for past two quarters (Cal 3Q and 4Q08); Spansion did not report Cal 4Q08)
Taiwanese PSC, ProMOS and Etron have reported sales but not yet their profits for 4Q08


Two memory companies were profitable in 4Q08. Macronix has been the leading supplier of Mask ROMs for many years, and though its sales were impacted, they still came up with profits of about $25M on sales of $170M, both down from 3Q08 and 4Q07. GSI Technology, a high-speed and networking SRAM maker in Silicon Valley, has picked up the slack in these two markets that other SRAM makers have moved away from, but which continue to support perhaps a few hundred million dollars in sales annually spread among all suppliers.

Remedial actions by DRAM and NAND makers came too late to help 4Q results, but have had some beneficial impact (esp. for NAND) in 1Q09. DRAM supply cutbacks ran into weak PC sales, and the ever-present move to smaller die and higher productivity, despite taking of thousands of 200mm wafer starts/month off line in the past 4-5 months. But, for the most part, demand was dropping faster than supply, and with still some inventory overhang from last fall, supplies were still outrunning demand. Even the NAND prices moving up in the past six weeks is viewed with some suspicion: Will it last, or not?

Discussion #1: Exchange rates’ impact on these results: As can be seen in the notes at the bottom of the Company Financial Results table, exchange rates changed markedly in 4Q08, compared to earlier in 2008. In particular, the Yen appreciated more than 10%, the South Korean Won dropped more than 35%, and the Euro dropped more than 20%. The NT$, which is loosely tied to the US dollar, remained about the same in the fall quarter.

Elpida has relationships with Rexchip and Powerchip in Taiwan, from whom it buys product. Most of the Koreans’ production is in Korea, except Samsung’s sizable fab in Austin. Hynix’ Oregon fab was decommissioned during 4Q08. All of these realities cause some accounting and ‘financial results’ interpretation challenges. Qimonda is mostly in Germany (Dresden), but has had production agreements with Winbond and SMIC in Asia, and closed its Virginia fab in 4Q08.

Many companies have debt denominated in US dollars, as well.

All these companies, plus the Taiwanese, report their financial results in their native/headquarters currencies, though they all sell internationally, at prices usually denominated in US dollars. Their books, on which they account for assets and liabilities (and depreciation, which makes up large fraction of their cost-of-production) are mostly in native currencies, with offshore accounts converted and rolled into consolidated results.

For Hynix and Samsung, we have converted results back into US dollars for a common basis of comparison; their memory sales were sequentially down by 18% and 21% in 4Q, respectively, measured in Won, and worse still when denominated in dollars, due to the Won’s depreciation against the US dollar.

Discussion #2: Taiwan and Government actions: Although no action had been agreed to during 4Q08, there was much posturing and discussion among all interested parties...the six Taiwanese DRAM companies: Powerchip, ProMOS, Inotera, Winbond for Qimonda, Nanya, Rexchip, plus prospective outside technology providers Elpida and Micron. Since this is not yet a done deal, and may not even happen, we’ll leave it at that and pick up the thread in a later edition.

Discussion #3: IP, royalties and license income: This nice nearly fixed-income stream amid declining sales revenues takes on a special tint in bad times, both for users/licensees (like a tax), and for providers, as something akin to a monthly Social Security Check. For the year, here are the reported royalty and license incomes for the major memory makers, SanDisk, Rambus, SST, and Mosys. Other companies get IP income, but it is paid in kind, or hidden in larger joint technology transactions (IMFT, full company IP cross licenses (ST and Intel), or specific transfers (Elpida from Hitachi and NEC then Mitsubishi).

"Memory Makers' Royalty and Licensing Income, 2008" ($M)
  Sandisk SST Rambus Mosys  
  R+L R+L R+L Royalty License
1Q 125.9 11.4 33.0 2.4 0.4
2Q 128.5 12.6 32.3 2.5 0.7
3Q 131.9 12.6 25.8 2.9 1.2
4Q 121.7 12.1 35.7 3.1 0.9
Sum 508.0 48.7 126.8 10.9 3.2
        Sum 14.1

Source: Company Reports


Hidden from view are such IP plays as the licensing of technology and DRAM designs from Elpida to Powerchip, from Hynix to ProMOS and from Micron to Nanya. Each process node installaion and associated designs costs between $125M and $180M. Inotera and Rexchip do not sell their own branded product directly the market and their output goes to their respective owners, so no royalties are involved directly with Rexchip and Inotera.

In the context of self-developed technology, the memory industry's R& D budget is probably in excess of $10B/year, so the costs of purchased or licensed technology, while not insignificant and a useful financial adjunct to some suppliers, are still a small part of the industry's technology acquisition budget.

Discussion #4: Sales by Quarter, by Product, Profit or Loss, NOR, NAND, DRAM, other: And another look, using additional outside data sources, to estimate the sales and profit by product line, across the entire memory product spectrum:

Sales and Profits, by memory product, 2008. Millions of US Dollars
    1Q 2Q 3Q 4Q Year
DRAM Sales 6000 6900 7000 4200 24100
  Profits -3470 -2700 -3600 -4450 -14220
  Percent -57.8% -39.1% -51.4% -106.0% -59.0%
             
NOR Flash Sales 1725 1650 1650 1125 6150
  Profits -615 -425 -320 -450 -1810
  Percent -35.7% -25.8% -19.4% -40.0% -29.4%
             
NAND Flash Sales 3600 3350 2900 2425 12275
  Profits 65 160 -640 -3300 -3715
  Percent 1.8% 4.8% -22.1% -136.1% -30.3%
             
All Other Sales 1100 950 1000 775 3825
  Profits 100 75 50 0 225
  Percent 9.1% 7.9% 5.0% 0.0% 5.9%
             
Totals Sales 12425 12850 12550 8525 46350
  Profits -4024 -3174 -4675 -8788 -19520
  Percent -32.4% -24.7% -37.3% -103.1% -42.1%
             
Denali Memory Companies
             
  Sales 14885 15650 14615 11014 56164
  Profits* -4024 -3174 -4675 -8788 -20661
             

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