Memory Company Financials, 1Q09

1Q09 Better than 4Q08, but still terrible:
Memory makers continued to suffer horrendous losses in 1Q09, effectively wrapping about $1.75 around each of the 4B or so units of DRAM, NOR and NAND that they shipped to end customers during the quarter. According to our compilation of memory makers' 1Q09 results, they collectively lost about $6.7B on sales of $9.3B. (The "losses narrow at Elpida, Hynix and Micron" headlines were hardly reassuring, as can be seen in the table below.) It was better than 4Q08 on the loss side by more than $4.3B, to be sure, but on revenues that were likewise down 15% from about $11.0B. Write-offs for various purposes continued to play a large role in these losses, so badly vendors misjudged the market dynamic and demand outlook.

In 1Q09, both DRAM and NAND prices recovered compared to 4Q08, but only made it a fraction of the way back to where they need to be to restore profitability. Supply restrictions by both DRAM and NAND vendors worked to improve prices, but un-utilized or under-utilized capacity still remained a heavy financial burden for everyone: all memory makers have idle wafer start capacity for which they were and are takng 'wasted' depreciation in 1Q09 (charges without compensating output/revenue), and everyone permanently took down non-competetive capacity for writeoffs in 4Q08 and 1Q09.


Yes, someone made money! Again, there were two companies that made money in memories in 1Q09, and they were the same two as last quarter. Macronix banked about $18.4M on sales of $145M for first place, and GSI Technology, a smaller Specialty SRAM company, eked out profits of $1.2M on sales of $13.6M, making it perhaps the ONLY network-centric chip company (except those which sold theselves to larger companies when things were still hot in 1998-2001), to have a net positive financial experience over its lifetime.

And yes, someone else took huge write-downs: The other side of the coin saw IDT take a comprehensive $686M 'good will and asset impairment charge' during what was their Fiscal 4Q ending 3/31...against sales of $107M. But, in later news, see the "Mother of All Special Charges" in Spansion's late release of their 4Q08 results, described below.

Quotable quotes: From GSI Technology 1Q09 Statement:

... "The sequential decline of approximately $665,000 in military/defense sales was not unexpected; nor was the decline of $1.1 million in sales to Cisco Systems, given Cisco's earlier announcement that it anticipated substantially lower sales in our quarter ended March 31, 2009. These declines, however, were partially offset by a $1.8 million increase in sales to Huawei Technologies, the result of an acceleration in the 3G build-out in China."

Is this the first step towards a "Changing of the Guard"? A bona fide competitor to Cisco?


Taiwan DRAM makers: We have had an on-going BLOG commentary about the dire situation for Taiwan's DRAM makers, which gets worse by the day, and for which we see no viable end in sight (for most of them.) We should see some resolution in either the ProMOS or Powerchip matter before the end of 2Q, or when their bonds become due. The longer they are rescue-financed, the more money their creditors will eventually lose before they actually DO throw in the towel. (Well, I said that about Hynix a few years ago, and they eventually made a government and bank-orchestrated comeback, so there MIGHT be a chance. But, by doing this, Hynix effectively forced others to join in their losing life-support initiatives with unnecesssarily low prices in the DRAM business for extended periods, costing the industry billions of dollars but extending Hynix life...which was good for Hynix and its creditors and shareholders, but not very good social policy for the industry.)

Frankly, I like the Anglo-American way of getting out of business...the TI way, the "Toshiba DRAM" way, the United Technologies way (Mostek, 1985), the Intel DRAM-SRAM way, IBM Micro DRAM way...argue about it, look at the numbers without rose-colored glasses...take your lumps, shut it down or sell the assets and leave. Get on with life!

Let the oppressed go free! Give the men and machines a chance to produce something the market values.

The nearly departed, Qimonda and Spansion: Both are in various stages of bankruptcy, have clamped down most of their production to a trickle and are seeking buyers for all or parts of their operations; both will face liquidation, within a few months (Qimonda) or several months (Spansion) if they cannot find a suitor (or White Knight), or present a acceptable plan for Business Reorganization to the Bankruptcy Court. More losses are yet to be recognized, in both cases. Unlike Taiwan's DRAM makers, also, neither has received recent money from their original and majority shareholders: Infineon on the Qimonda side, AMD and Fujitsu on the Spansion side. Rumors abound, but no money is apparent. These are good companies with good technology, (once) substantial market positions, caught in tough markets...and have had the door slammed shut behind them by the financial crisis: "Sorry, no more money." In another time, they would have been snapped up into larger entities and 'made right'. But not today.

Company Financials 4Q08 and 1Q09 All Values in Millions of US Dollars BOLDFACE entries are Denali Estimates

Notes:
"Others" include Sony, Matsushita, Renesas, Toshiba, Fujitsu, NEC, Elite Semi., G-Link, Alliance Semi, Sharp
Profits = divisional operating profits for Samsung, STMicro, Intel; profits are after-tax profits for all others
Mosys, SanDisk, SST, 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 2008
Qimonda has not reported for past three quarters (Cal 3Q & 4Q08, 1Q09); Spansion did not officially report 4Q08 or 1Q09 until 5/13/09, and is now current (see below)
Intel's NAND flash takeaway from IMFT still included in Micron's sales here.

Late posting of 4Q08 results by Spansion boosts Memory Industry 2008 losses to nearly $23B: On 13 May 2008, Spansion became current on filing their full financial results when they filed their 1Q09 results (sales of $400M and $89M loss) at the same time they released their 2008 Form 10K, which showed a huge 'asset impairment' charge of $1.6B for 4Q08, and a net loss of $2.08B for the quarter. The 1Q09 sales were surprisingly robust, in light of their bankruptcy proceeding.

Outlook for 2Q09 DRAM and NAND prices have moved up for more than four months now, but there are no guarantees the uplift will last; in fact, pessimism is the more 'conventional wisdom' one gets by reading the trade press. At any rate, price rebounds so far are not nearly enough to make memory makers profitable; at the "4Q08-to-1Q09" rate of improvement, they will break into the black about the end of 2010. Things could move faster than that, for sure. Memory makers have performed near 'feats of magic' in the past two years in terms of getting their manufacturing costs down, to keep losses under what they otherwise would have been. But, those who bet on market and profit recoveries for a livelihood (shareholders and security analysts), have stood by the sidelines, or worse: most memory company share prices still reflect much pessimism about getting things in order any time soon.

The financials for 2Q09 MAY reduce memory-makers losses by $2-3B, as write-off possibilities are nearly exhausted, and costs are coming down. Overall, the industry will still be very red, still not enough growth, and still shadowed by much latent capacity that can be brought into play at a moment's notice.