Sandisk meets with analysts, releases 10K

There's an analyst meeting going on right now. They say business so far this quarter is about as they forecast – lousy.

Sandisk files their 10K. There's some elaboration on the off-balance sheet aspects of their joint ventures with Toshiba to produce NAND flash. The basic gist of it is they own 49.9% (just not enough to not have to include the operations in consolidated results) of the JVs. They're on the hook for 50% of the output. If they incorrectly forecast demand they get stuck with a lot of raw NAND at cost plus a mark-up. They don't really get into how much of a liability that can be but the ventures have been ramping capacity at a significant pace.

There's some currency double-talk. They say they don't really hedge but then say they've got a 500mm+ position short the dollar. They also say they're buying product from Japan that's being produced in China. Confusing.

They intend to spend $4 billion on further off-balance sheet fab equipment over the next 3 years and will likely have to sell debt to raise the cash. That's a very big number, 4 billion. On February 19^th, 2008, Toshiba and Sandisk signed a memorandum of understanding to begin a new 300mm fabrication facility in 2010 – presumably this will involve more spending when the time comes. The potential for debt issuance is not a new issue as analysts have discussed it but it's one thing when business is ripping and the company says things are so good they need to invest further in the business. It's quite another thing when business looks weak.

Why do they continually structure the JV to hide the real P&L of the business? I think it's a multi-billion dollar blind spot in the story and I don't like it.