Legend cuts back memory business

Legend cuts back memory business

ASX-listed memory manufacturer blames poor market conditions

ASX-listed Legend Corporation (ASX: LGD) is cutting production of its heritage memory and computer component lines due to flagging revenue.

According to a statement posted to the ASX on Tuesday, the company will discontinue its international Performance Technology operations including its commodity memory and components production business. The decision is expected to cost Legend $20 million-$25 million and cut its goodwill by $17 million.

It follows a broader restructuring plan which has seen the ASX-listed hardware manufacturer and distributor rationalise operations in Australia as well as close offices in Singapore, Hong Kong, Thailand, Taiwan, New Zealand and South Africa.

Legend CEO, Bradley Dowe, said the company was not abandoning its memory manufacturing business in Australia, but will discontinue production of low-margin product lines, such as commodity memory items and computer componentry.

"We're not closing down our classic memory lines in Australia, but discontinuing our low-margin business," he said. "We will continue to manufacture memory products, but our focus will be on higher margins lines."

The decision would also see a reduction in its distribution of complementary third-party products such as motherboards and CPUs, he said.

Dowe blamed a global drop in average selling prices and a glut of flash memory for the Performance Technology business' ongoing poor performance.

"For more than 12 months we've been in a situation where the memory industry has over prepared for expected demand for Windows Vista and flash devices. We've seen a large increase in supply which has not been matched by demand," he said.

Dowe said the "headcount reductions" mentioned in its ASX statement were largely international and should not result in local redundancies. However, he said "natural attrition" had seen some staff exit its Australian operations in the past year.

"In Australia we have a much more diverse product range and customers so we can preserve the business," Dowe said. "We will still support our export business, but we won't be providing the comprehensive range for all requirements."

Last month, Legend warned investors it would not meet its full-year EBITDA forecasts of between $12.1 million and $14.7 million. The company now expects EBITDA for continuing operations for the six months to June 30, 2008 to sit between $4.5 million and $5.5 million.

The company's acquired subsidiaries, Hendon Semiconductors (formerly Integrated Electronic Solutions), and Cable Accessories (Cabac), will continue to trade normally. Legend purchased Cabac for $25 million in May 2006, and handed over $23 million for IES in November 2006.

"By taking decisive action now I am confident of returning the business to sound and reliable growth by maximising value for shareholders," Dowe said in its ASX statement. "I am very disappointed with the outcomes in the first half and saddened by the loss of many staff who have been a part of the company over many years. In taking corrective action we are confident that we are creating a robust platform for future growth."

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