Financial

posted on 25 July 2008 08:00

Memory chip manufacturer Qimonda is haemorrhaging money and losing sales revenue. This underpins the urgency of its cost reduction and Elpida partnership initiatives.

Qimonda reported Q3 fy08 net sales revenues of €384 million, down 48 percent from Q3 fy07's €740 million, and 7 percent from Q2 fy08's €412 million. It says it is making significant progress in reducing costs to a break-even point.

There was a net loss in Q3 fy08 of €401 million (-€1.17/share), exceeding net sales revenue, compared to Q3 fy07's net loss of €218 million (-€0.64). The net loss in Q2 fy08 was €482 million(-€1.41/share).

For the first nine months of fy08, Qimonda recorded net sales of €1.31 million, a decrease of 55 percent compared to the same period last year. Net loss amounted to €1.48 million (€4.33/share) compared to net income of €16 million (€0.05/share) in the first nine month of fy07.

This is a dreadful set of numbers, partially the results of over supply in the DRAM market and steadily falling prices, exposing relatively inefficient manufacturers.

Qimonda stated 'Year over year, gross and net loss for the third quarter were further negatively influenced by the significant decline in average selling prices. The effect of the rapid and deep price decline could not be offset by higher bit shipments – which increased more modestly than in past quarters as Qimonda cut less productive capacities – and improved manufacturing productivity. The phase out of external foundry capacities in the third quarter and the resulting volume decline had a negative effect on cost per unit; this offset manufacturing per-unit cost reductions in Qimonda’s in-house facilities. However for the fourth quarter, Qimonda expects a significant reduction in manufacturing per-unit costs as a result of the accelerated conversion to 75nm process technology and improving yields. '

Qimonda aims to raise sales by developing technically more advanced products, close down inefficient fabs, reduce headcount and so costs. It is also exploring a partnership with Elpida.

Kin Wah Loh, Qimonda AG's President and CEO, put a brave face on it, saying: "We have reduced our loss in the third quarter and have made significant progress with our productivity improvement and cost reduction program, and we expect the impact to become noticeable in the current and next quarters. In the third quarter, we have completely phased out less productive external foundry capacities. In addition, we have converted almost 90 percent of our capacities to 80nm and 75nm at the end of the quarter. In particular we have been able to accelerate our conversion to 75nm."

"The introduction of our first 1G DDR2 based on 65nm buried wordline technology in September 2008 is on track, and we have already achieved Intel validation for this chip on the component level. We expect to complete our workforce reduction and our cost reduction program by end of September as planned, which we believe will enable us to lower our breakeven point by about Euro 45 million per quarter. With the progress we have made, we feel well positioned for further recovery in our margins in the coming quarters.”

At the end of the Q3 fy08, Qimonda’s gross cash position decreased to €630 million compared to €768 million in the last quarter. The company’s net debt position in the third quarter was €1 million compared to a net cash position of €216 million in the second quarter of fy08.

Qimonda CFO Michael Majerus said: “We have maintained a solid gross cash position through our cost reduction measures, strict financial discipline and successful execution of additional financing opportunities.”

Concerning Elpida, in the third quarter, it and Qimonda signed final contracts  for a strategic technology partnership for the joint development of memory chips. They plan to jointly develop technology platforms and design rules drawing on both their technologies. Specifically, the companies target to introduce a jointly developed innovative 4F² cell concept in the 40nm generation in 2010 and to subsequently scale it to the 30nm generation. The companies have established a broad cross licensing of intellectual property. Additionally, they are currently exploring further partnership opportunities in the areas of joint development as well as joint manufacturing.

As a result of the protracted downturn in the DRAM industry and the recent sharp decline in Qimonda’s share price, Qimonda’s independent auditors have requested an independent valuation in order to finally conclude on management’s assessment of recoverability. Qimonda expects to conclude this valuation by September 30, 2008.

Outlook

For the fourth quarter of FY 2008, Qimonda expects its bit production to increase by over 20 percent compared to the third quarter, due to conversion to 75nm and improved yields. Qimonda continues to target an increase in its bit production for FY 2008 of 20 to 30 percent.

For FY 2008, Qimonda continues to expect bit demand for DRAM to be driven by continued solid growth in servers, consumer and communication applications and the move to higher density modules in the PC market. In general, Qimonda expects a slow down of supply growth in the market, as expected by independent market researchers, eventually leading to a more balanced supply and demand situation.

For the full FY 2008, Qimonda expects to record a share of bit-shipments for use in non-PC applications of slightly below 50 percent compared to the original target of more than 50 percent, due to the strong growth in productivity and bit-production for standard products in the fourth quarter.

Based primarily on the further productivity improvements Qimonda expects to achieve at its in-house and external foundry capacities, and taking into account the reductions it has made in its external foundry capacities, Qimonda is currently targeting bit-production growth of between 30 percent and 40 percent compared to FY 2008. For its 2009 financial year, Qimonda targets a share of bit-shipments for use in non-PC applications of more than 50 percent.

^{[Chris Mellor.]}