Q4 was awful. Seemed to match expectations though.
Anticipating this, SanDisk seems to have decided to get as much bad news out of the way as possible. Hard to fault such a strategy.
The wrinkle seems to be the announcement of the shelf registration. Initial panic seemed overdone and has proven exactly that.
Before news of the shelf (conference call), on 2 February SanDisk closed a shade over $11. The next day price at the close was $8 and change. A week later SanDisk was once again pushing $11.
Updates on x3 and especially x4 from the International Solid State Circuits Conference (ISSCC) probably helped restore confidence. Worked for me.
My tentative plan is put up some analyst excerpts next week. So I’m going to skip the numbers stuff today and focus instead on the shelf and x4.
The New Universal Shelf
Judy announced the shelf on the conference call in a brief dry statement- something to the effect that it might be nice for SanDisk to have a “liquidity cushion.” Hardly reassuring.
The problem for us existing shareholders is, of course, dilution. At the current share price, SanDisk’s target of $300 million to $500 million translates to dilution of 12% to 20%. Not a pretty picture.
But as is usually the case with SanDisk, there are many angles to be considered.
First and foremost is timing. While it may have felt imminent, SanDisk did not say they were going forward with such equity financing next week, next month or even this year.
This last week at the 02.11.09 Thomas Weisel Conference, Judy made an effort to put the shelf registration in a bigger, less-threatening context:
“We also announced last week on our earning release that we have filed a new universal shelf. Our previous shelf was due to expire in May of 2009. We filed a new three year shelf. We have not made any plans at this point, definitive plans, but we wanted to have that in place. We are planning conservatively, not knowing the duration of the down cycle to try to insure that we have the right path in place should we decide that we want to add a liquidity cushion to the balance sheet. If we do choose to do something, I’ll tell you that it would most likely be in some form of equity as opposed to debt, because we have $1.2B of convertible debt on our balance sheet and we also have large outstanding off-balance sheet lease obligations.”
The shelf doesn’t seem to be driven by a near-term cash crunch. SanDisk has enough cash for 2009. SanDisk said as much in the conference call.
Personally, I don’t think SanDisk is going to sell shares at these prices- certainly not in the near term.
While it is all fine and well to talk about a liquidity cushion, I wouldn’t be at all surprised if SanDisk also intended to send Samsung a message.
With the shelf in place, SanDisk can negotiate harder with Samsung for the renewal of the patent-license agreement. It shows Samsung that SanDisk is going to do whatever it takes to get a fair deal.
It’s a way of telling them that SanDisk can raise the money needed to survive long enough to stick it to Samsung in court- if Samsung is considering not signing by August.
SanDisk’s existing shelf is due to expire in May 2009 and as Judy said, it may be prudent to raise money at some point or at least have the paperwork in place.
And, realistically, if Samsung doesn’t resign, SanDisk will need the extra cash.
Then there is also the issue of SanDisk’s convertible debt that is selling at a deep discount- 47%. This next stretch would be a good time for SanDisk to cleanup/ strengthen their balance sheet by retiring debt at roughly 50 cents on the dollar.
SanDisk may have enough cash to do this without raising money, but it is good to have options. Especially given current economic uncertainties.
Eli and Sanjay played it cool on the conference call, but when details of x3 and x4 were revealed this last week at the the 2009 International Solid State Circuits Conference (ISSCC), they did not disappoint.
x4, SanDisk’s 4-bits-per-cell memory, looks really good. To be honest, better than I expected. Probably far better than the competition expected.
It was widely known that the chip would be 64-gigabit in a single die, making it the world’s largest capacity flash memory chip. The big unknown was whether it would measure up on performance. Hints from November didn’t look promising.
An EE Times teaser article said x4 write speed would only be up to 5.6 Mbit/second which translates to .7 MB/s (less than 1 MB/s). In other words, it looked like x4 would be really s…l…o…w compared to run-of-the-mill generic 2 bits per cell (x2) MLC which clocks in at around 10 MB/s.
SanDisk’s x4 press release from 10 February boasts of 7.8 MB/s x4 write performance- about a 1000% better than expected. I felt like standing up and cheering. In fact I did.
What happened between November and February to boost x4’s performance? Certainly nothing design-wise. I suppose EE Times could have screwed up with the numbers. Somehow I doubt it.
A more likely explanation is that SanDisk decided to set up the competition for a game of whiplash. Set them up with expected sub-par specs, and then hit them with their worst fears.
I wouldn’t be at all surprised if this was just another gambit in the Samsung re-sign saga. Intel couldn’t be too thrilled either. Neither seems to have an answer to x4.
An interesting angle to watch will be how SanDisk chooses to play its x4 controller card. The x4 controller is really special. There is no substitute. An x4 chip without its matching controller is worthless.
Way back, when msystems owned x4, Dov Moran msystems’ CEO was planning on keeping partners/licensees honest by controlling the controllers. It will be interesting to see how SanDisk proceeds.
There are lots of options for SanDisk- and options are good.
I suppose I should start referring to x4 as X4. This seems to be the SanDisk way. Old habits are hard to break, though.
Back in 2007 I wrote a post titled MegaSIM or Bust.
Bust it is.
In the Q4 conference call SanDisk announced that it has stopped development of MegaSIM cards.
Sometimes things just don’t work out. In tough times like these, best to move on when prospects aren’t promising.
I have put up a transcription of the Q4 conference call. Here is a link. The transcription is also accessible from the “Pages” box to the left.
Apparently China is blocking my blog. Seems bizarre, but stranger things have happened. Pretty amusing in any case.