SanDisk announces cost cutting measures
SanDisk Corporation has announced cost cutting measures.
"Industry wide NAND component pricing has deteriorated by approximately 50% in the past two months due to excess supply of NAND components coupled with first quarter seasonally weak demand. This is impacting pricing for our retail and OEM products at a steeper rate than we had been anticipating and in order to maintain market share we now expect to lower Q1 prices for many of our products to 30%-40% below fourth quarter levels," said Eli Harari, Chairman and CEO of SanDisk. "Although we believe there will be strong pickup in demand for our products in the second half of the year, we do not have visibility as to when the current aggressive pricing cycle will run its full course, and gross margins are likely to remain under significant pressure for several quarters."
"To strengthen SanDisk's profitability during this time of aggressive industry pricing, we are proactively taking a number of measures to reduce our product costs and operating expenses. At the same time we have identified a number of opportunities to focus and streamline the combined organizations of SanDisk and the former msystems, Ltd. which was acquired on November 19th, 2006. We will continue to invest in strategic R&D programs and new market opportunities," said Harari.
The expense reduction actions include several employee-related measures: A worldwide reduction in our employee workforce of up to 10% of headcount, or approximately 250 employees. These cuts will primarily occur in early March and impact all areas and will reflect, in part, the decision we recently made to de-emphasize the USB private label business in favour of the more profitable SanDisk branded business. A reduction in salaries for all executives and a freeze in salaries for all other employees. A freeze in new hire staffing levels for most areas, although the company will continue to hire in strategic areas including product innovation and future generation technologies, such as x4 and 3D.
Total annualized cash cost savings related to the reduction-in-force and salary related measures, excluding severance costs, are expected to be approximately $30 to $35 million including cash savings from the reduction-in-force of approximately $20 to $25 million. In addition the reduction-in-force will result in a decrease in stock compensation expense of approximately $10 million on an annualized basis. The company expects to incur a restructuring charge in connection with the reduction-in-force in the range of $15 million to $20 million, with the majority of the expense occurring in the first quarter of 2007.
Approximately 50% of this restructuring charge is stock compensation expense related to the terms of the msystems acquisition.
"We believe that lower price points in the NAND industry will accelerate demand, particularly in the handset market, and will stimulate the emergence of new markets, fuelling continued growth," said Eli Harari, Chairman and CEO of SanDisk.
"We believe that our actions will allow us to weather the current challenges and emerge an even stronger company when the next wave of growth in flash products emerges," Harari said.
