SanDisk to Cut Jobs, Salaries of Executives
In an announcement strategically timed to lessen its impact, SanDisk admits that it must cut prices to stay competitive in a tougher NAND memory chip market. Layoffs and salary cuts for executives are also planned.
News of SanDisk's troubles came after the market close, and at the beginning of a three-day weekend for most. Much of the trouble comes in NAND component pricing, which is one of the company's biggest industries.
SanDisk said that pricing has plummeted some 50 percent in the past two months alone, and it expected during the quarter to lower pricing on many of its products by as much as 40 percent.
The company offered a bleak assessment for the future in a statement Friday afternoon.
"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," chairman and CEO Eli Harari said.
About 250 jobs, amounting to about ten percent of SanDisk's workforce, will be cut worldwide. A hiring freeze will also be put in place for most of the company, and remaining employees will see their salaries frozen.
Executives will see their base pay cut as well: Harari will lose 20 percent of his base salary, while the president and executive vice president will lose about 15 percent. All other vice presidents will see salaries cut by ten percent, the company said.
As much as $35 million will be saved annually when the cuts are implemented, much of that coming from the reduction in workforce. Restructuring charges of $15 to 20 million are expected as a result of the changes.
"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, fueling continued growth," Harari continued. "We believe that our actions will allow us to weather the current challenges and emerge an even stronger market leader when the next wave of growth in flash products emerges."
Early warning of SanDisk's problems came in January from analyst firm iSuppli, who said that price plunges would slow growth of the sector. Last year, price of DRAM chips only fell 13 percent, far off the 30 percent annual average.
iSuppli believed at the time that the rate of price decrease would return to historical levels, but companies would be able to absorb it. Apparently, from Friday's news, that is not the case.