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Friday, April 11, 2008

Micron (MU) upgrades coming?

NAND prices climbing, DRAM price hikes went through for second half of April, cut capex after they reported, quarter wasn't as bad as it could have been...

I don't see why we won't get upgrades here.

PS: I'm long some.

NAND spot continues to climb

It's rarely easy.

NAND spot prices have been moving up since Hynix announced they were cutting capacity on Apr 1. People tend to like Sandisk when spot prices move higher. My preference is Micron as their model is more levered to the commodity price. Sandisk buys NAND and sells cards. Higher spot prices without higher retail prices hurts their margins.

Hey, someone else cares about Sandisk's funky accounting. Weird.

Barron's wrote up a piece on SNDK detailing the er lack of details on Sandisk's off balance sheet fab accounting. The article focused on how keeping the fab spending off the books obfuscates the true cost of their aggressive expansion. I agree, though I tend to focus more on the way it affects gross margins and they're looking more at how it affects cash drain. Regardless, they've got a very bold capex plan for the next 3 years, with 4 billion dollars slated to go into the murky JV. The article comes to the conclusion that if Toshiba cut the amount of money they contributed to the JV, Sandisk would wind up owning over 50% of the venture. They wouldn't be that stupid. If Toshiba cut capex, so would Sandisk. C'mon, guys.

At any rate, it's good to know someone else has noticed that Sandisk's true operating results are very different from their reported numbers. Still don't like it here.

Thursday, April 10, 2008

Taking some profit in Digital River (DRIV)

I'm offering half my position in Digital River at $35.65. I had suggested buying it at $31 after it blew up. I'm a little worried that Symantec, their biggest customer, has had another in a series of lousy quarters, which is why I'm selling half. I still love internet software distribution as a business and think they're a likely acquisition candidate, which is why I'm holding onto the rest.

Shorting Intel (INTC) here

I think they had to give some concessions to Dell in order to fully dislodge AMD. Historically, Intel paid some hefty fees to Dell for exclusivity. This deal was forged during the early years, under Michael Dell. Analyst notes recently indicate AMD has ostensibly lost the Dell business. As Michael Dell is back running the company, this probably means the old deal is back in place and that Intel will see some unexpected cost pressure as a result of it.

I think they're going to have to lower guidance when they report based on weaker desktop trends and overall economic funk. I've previously stated that I believe the company is fairly valued at $15. I also like the entry point on the chart. I laid some out at $22.17 just now.

NAND prices bounce

For what its worth, there's been a bounce in NAND spot prices. Sandisk investors have responded by bidding the stock up over the last week.

Yahoo fools, Google drools

Articles all over the place today on YHOO/MSFT.

Let's start with Yahoo/Google. If Yahoo were to outsource their search business to Google, it would be good for margins and terrible for the thousands of sales reps that would lose their jobs as they'd be dead weight. It would also destroy Yahoo's branding. Yahoo had used Google for search results in the past and they found that they lost search customers in droves to Google over time. They bought Inktomi to try to hold onto those users and stop farming them out the back door to Google. It's a dubious strategy if they want to remain an independent franchise. It's a bluff -- it's purely a "test" at this point. They're willing to try almost anything to get Microsoft off their ass. Why it's so important they run their business into the ground by themselves is beyond me so I figure they're just trying to get a higher bid going.

Yahoo is also reportedly discussing plans to merge with AOL's internet unit ex dial-up. Yecch. I don't see how that's better than Microsoft. In fact, it would result in dilution and a quick 40% drop in share price. AOL won't be a better dance partner. Bad idea.

Microsoft and News Corp are reportedly exploring a joint bid. As News Corp early in the process was thinking about dumping Myspace into Yahoo, this seems logical. It probably creates utter confusion and winds up great for Facebook and Google who have all the momentum. As a bonus, it'd get Google out of that lousy myspace deal they're stuck with for another couple of years.

Every scenario seems good for Google as the competition becomes a mess of misalignment, internal politics and layoffs. It would open the field up for them for years to come. Too bad I can't get a handle on the Google quarter... there's lots to like about their positioning here.

Tuesday, April 8, 2008

FormFactor (FORM) cuts guidance

Damn it. I forgot to mention FormFactor when I was listing the memory exposed semicap equipment companies I don't like in that piece earlier. I wrote them up twice, too.

Cap equip still weak

Yesterday I suggested getting out of KLAC short.

To clarify, that was just KLAC, not the whole group. I think Arcuri has been good on reading KLA management. I still hate companies with significant memory capex exposure, like LRCX, MTSN, VSEA. I expect terrible orders to slash earnings forecasts over the coming weeks. Memory companies are in trouble as DRAM is in substantial oversupply. I need to see serious cutbacks on existing capacity before changing my mind. Capex companies are more geared to memory-related spending than at any time in history.

Ps: Novellus blew up this morning. They suck too. That's not a sell recommendation... its just a fact.

AMD preannounces lower results

Intel runs you over every time you think you might get traction. It has to be hard. Both companies are struggling with a weak desktop market. AMD, though they've made significant progress on the technological front with their more sophisticated line of processors, is hopelessly under-capitalized relative to Intel. When times are great, there's business to go around for everyone. As the economy slows and business gets more competitive, it's going to be a lot worse for the lesser company. AMD is the lesser company here.

I think Intel will lower guidance for next quarter when they report and AMD's outlook will deteriorate further. Don't go bottom fishing in AMD.

Monday, April 7, 2008

SOX 400-410?

Earnings approacheth!

Expect theskew to pick up the pace as earnings reports start to flood the wires over the next few weeks.

In the meantime, though, I'm in Miami. Though blogging in the cool breeze from a terrace overlooking the ocean beats blogging from a terrace in the biting wind overlooking a construction site across the street, I'm heading out to the pool.

Analysts play catch-up

Quite a few analyst price targets coming down this morning to adjust for a declining market. Not much value there.

Tim Luke at Lehman cuts his target on Nvidia to $25 but likes it on valuation. Conversely, Amtech upgrades it to a buy and says investors are expecting a worse earnings scenario due to pressure from Intel and AMD/ATI than they're likely to see. I still like Nvidia, despite its lousy stock price action. I'm long it and probably somewhat biased.

Weisel downgrades Seagate on margin pressure bringing their numbers below consensus 09 estimate of $2.77. They think Seagate will grow at less than the 4% the overall hard drive market will grow in 2007-2011. I maintain that at $21 that's factored in. It's been pretty disseminated that the end of the quarter was lousy for hard drives. He's got a $25 target on it which sounds about right, though I'm a buyer of the stock on weakness and his downgrade seems to be telling you to get out.

If you've glanced at a newswire, you've seen Microsoft is threatening to lower their bid if Yahoo doesn't respond by April 26th. Yahoo management seems utterly out of touch with reality and this will likely step up shareholder pressure to accept the bid.

Citi raises their rating on KLA Tencor, citing stronger than expected performance relative to peers in a declining capex environment. They say Samsung market share wins will offset weakness elsewhere. Unquestionably, Samsung is a beast. Their memory capex budget is subsidized by their strength in other aspects of consumer electronics like cell phones and flat panels. I think even mighty Samsung will have to face the reality of the unprofitability of memory at some point. That said, this analyst is close with the company and I think his call has to be paid attention to. I'd get out of the way on KLAC if you're short.

Weisel upgrades Apple. His call is pretty much that long-term the stock will enjoy a higher multiple as current fears over weak iPods fade. He raises his target price.

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