Early Returns on 1Q09 Financials

Memory Companies Suffer More in 1Q09, but Future Looks Better...or so they say:
Many of the world’s leading memory companies have already reported their 1Q09 financial results, which are, not surprisingly, about the same as their 4Q08 results, both in the sales levels and profits, though DRAM was marginally worse and NAND flash likewise a little better. Hynix, Samsung, SanDisk, Micron are all in; Elpida and Toshiba have just finished their Fiscal 2008 on 31 March 2009, and will release 'official' year-end numbers soon, but company-authorized ‘close estimates’ are widely available in advance of fully audited results.

Based on these companies, which collectively make up more than 60% of total DRAM and 90% of NAND sales, one can see how well the industry fared as we moved into 2009:

* Micron's FY ends 8/31, so its 1Q09 was Dec-Jan-Feb; others 1Q09 were all the Jan-Feb-Mar months.

Caveat #1: Several Companies...DRAM makers ProMOS, Powerchip and Qimonda, in addition to NOR market co-leader Spansion...are in various states of restructuring, negotiations for sale of all or part of the operation, bankruptcy, pre-liquidation, and/or receivership, and have not even fully reported their 4Q sales and profits. The remaining companies not shown above are all expected to report within two weeks, when a fuller accounting will be presented.

Caveat #2: Since many companies took large annual write-offs in 4Q08, to correct for inventory over-valuation, impaired assets and Good Will that turned out to be not so good, we expect that once the dust settles, 1Q09 will show some real improvement in results compared to 4Q08...for most, there was nothing left to write down as they rolled into 2009. According to our earlier 4Q tabulation (including estimates sales and profit/loss for not-reporters), the ‘memory’ industry had 4Q08 sales of $11.0B and lost about $8.8B, finishing out the industry’s most painful year ever.

Caveat #3: Exchange rates continue to be volatile, and to muddy any interpretation of results which are converted from ‘native’ currencies of most memory vendors. We reproduce our comments from an earlier article, below:

“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.”



Caveat #4: Samsung’s presentation in their analyst slide set for 1Q09 results had some changes in the way they report product lines for 1Q09, making a sequential comparison difficult but not impossible. This complication will temporarily add to interpretation difficulties caused by their international business operations (production in Texas), and the continued Won depreciation against the dollar. Suffice it to say, their 1Q09 results for memory were ‘about the same as for 4Q08.’

Summary: When final tallies are made, we expect that sales for 1Q09 will at about $9.5-10.0B, and an industry-wide loss that is reduced to about $6-7B. The loss is expected to be less due in part to improved pricing and pricing stability, but offset by reductions in GB shipments or shipment growth of both DRAM and NAND, as well as the exhaustive ‘housecleaning’ done in late 2008.