Intervention by Japan's government to weaken its currency eventually could benefit companies doing business in the country, including SanDisk Corp. (SNDK), the company's chief financial officer said.
Milpitas, Calif., chip maker SanDisk operates a NAND flash memory joint venture with Toshiba Corp. (TOSYY, 6502.TO) in Japan, which includes manufacturing facilities. The wafers used to make memory chips are purchased by SanDisk in the Japanese yen, a factor that has been hurting its cost structure.
"That has been a challenge for our business model over the last few years because the yen has appreciated pretty significantly," SanDisk Chief Financial Officer Judy Bruner said Monday in an interview.
She said for the past two years, SanDisk has tried to purchase forward about half of the yen it would need in the coming year to reduce the variability and know at least some portion of its cost. Bruner noted intervention by the Japanese government should help moderate the volatility. "Hopefully over time that [intervention] will make some impact," she said.
Japan on Monday jolted currency markets with a round of intervention, in what is thought to be one of the biggest dollar-buying efforts on record. The Japanese Ministry of Finance is thought to have spent around Y5 trillion-Y7.5 trillion ($60 billion-$80 billion) to buy dollars against the yen, pushing the pair up to Y79.55 in an effort to weaken the Japanese currency after the greenback printed another record low against the yen at Y75.31 at the start of Asian trading hours.
The yen has been viewed as a safe haven in terms of currency, Bruner said, and the currency also has risen amid investments to rebuild the country after the earthquake and tsunami earlier this year. The increasing value of the yen has hurt Japanese-based manufacturers and companies operating in the region, like SanDisk, she added.
"Within Japan, [the appreciation of the yen is] becoming a problem," she said. "For the manufacturers in Japan, it's making it much more difficult for them to export. For companies outside Japan to buy their products, it's become more expensive."
SanDisk in the fourth quarter of 2010 locked in a rate of 82 yen to the dollar for about half of its yen requirements for 2011. That turned out well for the chip maker as the yen-to-dollar exchange rate worsened.
The company has been placing hedges for 2012 in recent weeks, Bruner said, though she noted the price isn't as favorable as it was at the end of 2010. Bruner said during SanDisk's third-quarter earnings conference call earlier this month that the company already had hedged about 30% of the yen purchases it expected for 2012.
SanDisk and Toshiba manufacture their flash memory in Japan, but Bruner said currency and other risks, such as the recent natural disasters in Japan and Thailand, will play a role in deciding the location for any future facilities. SanDisk has no plans to build more manufacturing factories as it's ramping up its newest facility in Japan. The company had determined several years ago the benefits of having its three factories together in Japan outweighed the risks, Bruner said.
SanDisk, once mainly known for small storage cards and thumb drives sold in retail stores, sells flash memory chips for devices like smartphones, tablets and digital music players. The increasing amount of songs, videos and other data stored on mobile devices has helped boost demand for flash even as memory supplies remain tight. The company also recently made an acquisition to give it a bigger foothold in solid-state drives, which increasingly are being used in data centers and PCs.