Lehman out on semis

Tim Luke out with a summary of his recent trip to Asia, there's a conference call @ 10:30am.

Notebooks remain strong, desktops and servers are weaker; he thinks Intel's second half numbers look conservative. Broadcom and Nvidia could have lowered numbers for the quarter but he believes there's valuation support – I agree there. Not from Lehman, but I've read more than once that a fire at an LG battery plant is constraining notebook builds for HPQ for the quarter and they've ratcheted down their plan for the quarter to get in line w/ their limited battery supply.

Cell phones are weak with inventory adjustments at Nokia and difficulties at Sony Ericsson and Motorola weighing on growth. Totally right, Nokia has been pulling back at the high end at a couple of their supply chain partners.

He cites some slowness in Xbox and PS3. My observation is that following the initial pop following console price cuts, PS3 picked up some share but the data has been moderating. Xbox, which enjoyed an early lead in the market has held up but definitely has been slowing. Halo 3 drove some good console uptake around the holidays but last month's data was showing some sluggishness. The Wii continues to dominate the category. It seems like the only thing keeping Nintendo's console shipments capped is limited supply – it's amazing to me that over a year after it's release one still can't walk into a store and walk out with a Wii.

Apple is still not around and NAND remains weak. Samsung thinks they'll be back in April, Hynix thinks June. I think Apple is symptomatic of the problems in the NAND market. Sure, they're a big portion of the sales. Sure, they matter. At CES I saw literally a hundred different NAND players that no one will buy. That to me is the bigger problem… too many marginal players that don't really belong in the marketplace have created an overestimate of how much NAND is needed. This will take time to correct.

iPhone heading for the enterprise?

I don't know how successful this software developers kit will wind up being. I'm discouraged that Jobs keeps saying flash player sucks while iPhone users keep begging for a flash player. Like it or not, Jobs, flash has become an internet operating system standard... and its an opportunity to distinguish your phone from the rest of the pack. Flash mobility is rare and could be a breakout application to sell into that webby cult of artistes you call the Mac base. Unless you've got some other way to port flash to the iPhone, you're making a big mistake denying it to the base. If it's too big and slow, that's fine, let the end user make that decision. Wow, I feel ironically like I'm hurling stones at a tyrant with this Jobs ranting.

The iPhone does document rendering beautifully -- you really see the page just as it is. Unfortunately, the 8x11 paper standard makes everything look so tiny and far away on the iPhone screen that you have to spend 10 minutes squishing and unsquishing the document to get it to fit the screen just so. Fun at first, annoying as hell shortly thereafter.

I tried many times to defect from the Blackberry -- first to the Motorola Q (sad, I know) and then to the Treo. Neither of them worked very well or kicked the emails through instantaneously like the Blackberry does. I always had to go back. The iPhone push email through Yahoo was real push email. And it worked really well. I imagine they're going to have bridges to corporate email in the future. They've said they're going to have some enterprise solutions tomorrow.

I think RIMM could see a little near-term turbulence going into the Apple meeting. I'm likely to suggest buying the stock on weakness but I'll wait to see what Apple actually announces. No hurry.

On an almost related note, my wife is at the Apple store right now for her 9:50 Genius Bar appointment to have her iPhone repaired. The top half of the screen is completely dead to the touch.

iSuppli sees weaker NAND market

iSuppli drops their NAND forecast from a silly prior forecast of 27% growth to a more reasonable (but probably still too high) single digit forecast. Most of the reduction is being blamed on Apple's weaker buy plans to suppliers.

I think the horse has been gone from the barn for a while here, guys. To be cutting the NAND forecast based on month old weakness at Apple is pretty lame. Not that it isn't correct... it's just late as hell.

Apple shouldn't be strong off RIMM

There's really no correlation between RIMM's results and Apple's business.

The iPhone needs a product refresh to juice growth again. Until that happens, the stock will be mired in a netherworld of iPod concerns and questions about what's taking 3G so long.

Research In Motion (RIMM) Patents Surface

Ok, ok, that's not the new RIMM patent photo but its kinda funny.

Here's the real drawing:



Unwired Article on RIMM patents

The patent was filed on February 7, 2008. It's clear RIMM is hard at work on a Blackberry counter to the iPhone. This may be part of the 9000 series that's been speculated. This one has some kind of slider mechanism and a hinge that lets you angle the screen. In general I'm opposed to complicated mechanisms on top of technology, especially in portable devices where the oops-i-dropped-my-gizmo factor is so high. The touchscreen technology senses location, finger pressure and can handle multiple points of contact simultaneously -- at least in theory. Pressing on the screen to zoom in on an area strikes me as far less idiotic feeling than flicking the screen 300 times to get it sized right.

One day this product will be great for RIMM's stock (when it launches) but a patent is a far cry from product shipment. It's not actionable though it is noteworthy.

Apple takes advantage of lower memory prices

Apple announced iPhone and iTouch models with double the memory of existing models for another $100 on either model.

Storage ain't the problem here, guys. It's data speed. We need 3G. And give us a nifty fold-up Macbook Air-type keyboard, please. That touchpad keyboard is sooo Atari 400.

Sandisk Q4:2007 Preview

Ok, this is going to be a tricky one so stay with me.

Sandisk is kind of the bellwether stock for NAND flash but its intensely misunderstood by the street.

Sandisk is effectively a virtual foundry for NAND. They own their own fabs through a joint venture with Toshiba called Flashvision but the investment is held off balance sheet. I hate this about the company as it really obscures the key area of fortune for them.

Their business has a large royalty component due to intellectual property patents they license to virtually all NAND producers. This is gravy -- royalties are 100% gross margin, though I would make a case that these should be looked at against legal expenses as patent enforcement is the biggest cost component to intellectual property revenues.

So that's the background. The results they report are those of a packager. They buy raw NAND from their joint venture (and a bit from Samsung if they need more than they're producing), package it into retail cards and sell them to the channel for consumption by consumers.

What I don't like about this set-up in terms of analysis is they can kinda print anything they want in terms of "cost of goods" on raw NAND purchases from the JV.

Pricing in the channel has been lousy, but it was really in December that it collapsed. There were big rebates available towards the end of the year (like most years before).

The stock is also subject to Apple supply chain push and pull which further obscures expectations. Sandisk does not supply Apple with parts for their iPod line, but whenever Apple is accumulating parts, people drive up the price of Sandisk because the price environment improves. I think when raw NAND goes up, it actually creates a cost increase for Sandisk as they're a buyer of NAND and a seller of retail cards. So when pricing goes down, it creates the inverse situation -- a better cost environment for Sandisk.

The best of all possible worlds for Sandisk is a tight retail card environment coupled with a benign contract NAND market. What they got instead this past quarter was a strong NAND environment at the beginning of the quarter due to Apple pulling on the channel for parts, followed by a weaker contract and spot market for NAND and a soft retail environment.

To me, this spells top line miss. I think they should put up a number closer to 1.1 billion versus the 1.26 billion the street is expecting. I would expect guidance is couched with an awful lot of caution. I'm pretty nervous about putting that in print but there you go... its in print.

Technical analysis tells me the stock is a buy at $18 and a sale over $28. As I said, this is a very volatile stock and my view of their business is decidedly different from that of the street.

It's probably a short but I'd be very small if I put it on. The stock has been free-falling all quarter and to some degree expectations have to be below the printed estimates.

The "missing" iPhones

The cell phone business is a channel fill. When a company comes out with a new phone, they seed the channel so stores have the phones in inventory when a customer walks in and wants to sign up.

With all the glowing reviews the iPhone received, it's no wonder the channel would be full of product. I know a few people waiting for a 3G version -- the edge network is just slow. AT&T service is still spotty in New York somehow.

Personally, I had an iPhone for a few days. My thumbs are gigantic. Seriously. Just huge thumbs. The sleek keyboard just didn't work with my ogre-like digits. The web-page resizing feature is very cool but sooo annoying. I spent half the time surfing resizing the screen so I could fit what I wanted to see to the display. I had to return it. My wife has slim fingers and she loves her iPhone. I still look at it with some covetous discomfort but it's not for me yet.

I think Apple may have fallen prey to a lack of market knowledge in revealing too much about the sales of the product. They're not cell phone guys.

The pricing of the product in Europe is just astoundingly expensive -- it's a $700 phone there. That's just silly. Sales in Europe have been disappointing and it's no wonder. They need to cut the price there, same as they did here a couple of months into selling it.

As to the missing iPhones... they're not missing. They're right where they're supposed to be, in the stores... waiting to be bought. As the iPhone is an expensive ticket and so consumer-oriented, they're probably going to see seasonal softness in the post-holiday sales. They've been cutting back on component purchases across the board.

This creates a difficult environment for the stock. With half of the business tied to the iPod and iPhone, it's hard to make a case it's going anywhere anytime soon. The chart suggests $120 is the next possible bounce level.

Synaptics loses its touch

Synaptics briefly became a proxy for Apple in that they were designed into a couple of iPod models (not the nano or the iPhone/iTouch) and they make a nifty touch screen product that's incorporated into LG's Voyager phone offered by Verizon -- an iPhonish product.

After peaking at $60 in November, Synaptics bled a straight line to the high 20s before rebounding to 31 and reporting earnings. A number of analysts defended it on the way down, suggesting rumors of market share losses in the notebook market to Alps were unfounded.

Last night, Synaptics reported an in line number and guided well below street consensus for next quarter.

Russ Knittel, Synaptics' Chief Financial Officer, added, "It is clear that
issues concerning the economy are impacting the general business outlook and
the behavior of our customers. Given the 34% decline in our backlog exiting
the December quarter to $37.5 million and recent reductions in customers'
forecasts, our current revenue outlook for the March quarter is in the range
of $76 to $82 million, representing an 18% to 27% increase over the comparable
period last year. Looking out to the June quarter, we currently anticipate
sequential revenue growth in the range of 11% to 19% relative to the mid-point
of our March quarter outlook. Despite uncertainty in the market, Synaptics is
on track to exceed the 25-30% revenue growth outlook for fiscal 2008 that we
provided entering the fiscal year, along with record profitability."


So backlog down 34% sequentially, revenue outlook of ~79mm with consensus of 85mm and guiding to roughly 85-92mm for June with street pretty much right there. They stated almost all of the incremental cutback to their outlook was related to the mp3 market, which has severe seasonality, especially when Apple yaks a quarter. They didn't confirm or deny the market share losses in notebook touchpads but they acknowledged a more cautious customer environment overall.

The stock responded by plunging to $24. I'm kind of surprised. I'd put it more in the low/mid 30s but I was appalled when it was at $50 and got run over being short it up to $60 so maybe I'm wrong again.

The world is not ending. It's just changing.