Local Layoffs Loom as SanDisk Cuts Back

SanDisk, which bought Msystems of Kfar Saba back in the boom days of July 2006 for about $1.5 billion, is expected to fire hundreds of people from its 3,000-man worldwide workforce.

Dozens of Israelis are expected to lose their jobs if SanDisk downsizes, as the flash-memory giant that bought Msystems is widely expected to do.

SanDisk, which bought Msystems of Kfar Saba back in the boom days of July 2006 for about $1.5 billion, is expected to fire hundreds of people from its 3,000-man worldwide workforce.

Given the state of the markets, SanDisk might let as much as 15% of its manpower go, surmise industry sources. If so, that would mean as many as 450 layoffs, of whom just under a quarter might be in Israel.

At this stage, SanDisk has not officially commented on layoffs.

On Tuesday, SanDisk admitted that its third-quarter losses had mushroomed to $155 million, and that sales had plunged by 21% year over year to $821 million.

Put otherwise, its losses have grown for the second quarter in a row. For the second quarter of this year SanDisk had posted a net loss of $68 million. During the last three quarters, from the start of the year, the flash memory maker lost $205 million.

The figures were worse than Wall Street had been expecting, and sent SanDisk stock sliding 7% on the market Tuesday night. Come yesterday, SanDisk lost another 32% of its value. Analysts blamed the company's results on excess supply and the weakness of global consumption.

Following Samsung Electronics' decision yesterday to withdraw its $5.9 billion offer to acquire SanDisk because of the weak market, SanDisk founder and CEO, Eli Harari warned of "deep cuts" to reduce capital expenditures.

Originally SanDisk had planned to spend $2.4 billion in 2008, in terms of capital investment outlays, Harari told analysts. Now it's cut that figure by half a billion dollars, and in 2009 capex investment should be just $1.3 billion, down from the original target of $3 billion.

At its research and development centers in Israel, SanDisk employs about 700 people. Its local operation is headed by Dan Inbar.

It has to be said that investors had been dubious about a deal between Samsung and SanDisk, given that the spread between Samsung's offer price and SanDisk's trading price was 80%, according to Reuters.

"Your surprise announcements of a quarter billion dollar operating loss, a hurried renegotiation of your relationship with Toshiba and major job losses across your organization all point to a considerable increase in your risk profile and a material deterioration in value, both on a stand-alone basis as well as to Samsung," Samsung CEO Lee Yoon-woo wrote to SanDisk management in a letter disclosed yesterday. "As a result of these developments, we are no longer interested in acquiring SanDisk at $26 a share." SanDisk, which last month rejected Samsung's bid as too low, said its board had remained open to a deal that "recognizes SanDisk's long-term value" but added Samsung had never contacted it after an exchange of letters in September.

Texas Instruments is a world leader in chips for cellphones, but even it is feeling the pain of the pullback. The company has warned the investment community that it means to lower its forecasts for the fourth quarter of 2008 because of weak orders.

Texas, which employs some 30,000 people around the world, says it intends to lay off 650 of them.

The chief executive of Texas Instruments Israel, David Shamir, says he doesn't expect local layoffs to exceed 5% of the workforce. Based on a local operation of 400 people, that translates into less than 20 people losing their jobs.

With reporting by Or Herschaug