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Thursday, May 22, 2008

iPhone 3G delay rumors - naturally

With a couple of weeks before the Apple Worldwide Developers Conference (WWDC), where Steve Jobs is widely rumored to be planning to release the new iPhone, well... here come the rumors.

Baidu, Google, Research in Motion and Apple have been trading in tandem since the middle of last year. The first 3 have all undergone 10-15% corrections in the last few sessions... for different reasons. Google because Microsoft is offering cash to consumers for clicking on ads instead of taking it themselves. Research In Motion because... well... it kinda traded off following as the hype ran out of the stock in the wake of the Bold rollout. Baidu... who knows... bunch of monkeys on speed trade that stock every which way every which day. Apple has been slow to follow.

Apple's Mac sales data was strong for the month of April and presumably is still holding strong in May. iPods, the laggard, have been inching up and are tracking over street consensus of 10.5 mil units. Apple procured a lot of NAND in early April at very aggreeable prices and should see a margin benefit this quarter, though they guided margins lower when they reported.

The iPhone may or may not ship on June 9th. The real question is whether they'll ship enough volume in the June quarter to offset the complete debacle that is the 2G iPhone channel drain. I think they just don't want to sell people a product that they know from past experience customers will demand their money back for when they roll out a superior product at a lower price point a couple of weeks later. And it's probably the right move over time. The fact is that they have a dozen carriers signed up to sell it for them... whatever they ship is probably not enough to fill the demand anyway. If they have a hickey in the quarter, it's going to be forgiven as you get into the seasonal strength of the September quarter when new Macs get sent off to college and they continue to produce iPhones as quickly as they can.

Their 10mm unit estimate for this year is probably far too low once the 3G version is out there at a $199 price point.

The biggest issue with Apple is that everyone really ought to know all of this. The story is changing somewhat. Apple got a lot of benefit from the AT&T relationship in that they received a $20/month kickback on all subscribers. The question is whether these other deals will be as lucrative as they're non-exclusive. I would think not. So there will be less subscriber revenue on the back end over time. That's not terrible if they can sell millions more phones this way... and they probably can.

The author is long a little Apple here. Just a little.


A friend just pointed out to me that I wrote that the phone would be $199 and implied it would be sold through other carriers. I think the more accurate thing to say would be it will be subsidized at $199 through AT&T (at least, according to popular conjecture) and will be sold at a premium ($399?) through Apple directly where it can be unlocked and used on other carriers. I'm getting ahead of the story in talking about carriers besides AT&T selling the phone. (Though if I were a carrier and I could get away with it, I'd probably buy a bunch of unlocked phones at $399 and charge people an extra $5 a month in iPhone data premium to recoup my loss.)

Wednesday, May 21, 2008

Yahoo and the pile-on

Microsoft is explicitly saying they no longer are interested in buying all of the company and would prefer to cut a deal in search. That's not what the guys buying the stock are looking for. They want Microsoft to buy it. The whole proxy argument stems from the Microsoft offer, which is no longer there.

The stock may be vulnerable to a rush for the exit. It's a question of who flinches first, I think.

Memory price update - 2H May

As I mentioned earlier this week, DRAM prices moved up. Flash prices appear to have moved down slightly -- 2-3%. This doesn't really matter. Spot prices were beneath flash prices. I wouldn't get overly excited about it.

Perhaps more revelatory, however, is what's happening at Kinsus, a packager in Taiwan. These comments out of Citi:

* What are our concerns- - 1) Kinsus's sales could decline
sequentially in 2Q08E, falling far short of Bloomberg
consensus expectations of 11% qoq growth; 2) Our industry
checks suggest large order cuts by customers in comms
(from 10-20% qoq growth to a slight decline QoQ), NAND
flash card substrates (orders being cut by 2/3, from 25%
of sales in 1Q08 to 8% of sales in 2Q), and set-top-box
ICs (a 50% cut by one large customer); 3) Production
bottlenecks could affect advanced FC CSP substrates (20%
sales in 2Q08E) and utilization in wirebonding substrates
could be much lower.

Customers are Broadcom, Qualcomm, Samsung, Toshiba and Sandisk. That's a pretty dramatic change in patterns, particularly at the end of what a number of companies are saying is a back-end loaded quarter.

As I've said, I don't like the SOX much 410-420. I think the risk/reward is poor. Inventory levels seem to be consistently higher across a broad spectrum of the supply chain than they ought to be heading into the slowness that is summer.

Tuesday, May 20, 2008

Intersil (ISIL) sees business pretty much in line

They indicated bookings about as expected for Q2 and that gross margins are flitting between 57 and 58% and will for the foreseeable future as cost reductions are planned but happening slower. Gross margins are expected to be 57.2 - 57.8% for the next 3 quarters so it doesn't look like their guidance is off relative to the street.

They'd rather be an acquirer than an acquireree. They're surprised there wasn't more consolidation in the last 6 months (me too) when valuations came in so much. They hear there's some deals close in the space out there but didn't cite any examples (damn rumor unmongerers.)

Boring but stable.

Nintendo (NTDOY) Wii Fit trading for 80% premium on eBay

On the back of wildly positive press coverage of the Wii Fit's release, the balance board is trading on eBay for $150-160 (at least that's what the last few auctions I watched went for). It's list price is $89. Good buzz and under-availability. That's becoming the Nintendo trademark.

EMC says SSD is the future

EMC's Joe Tucci, speaking at EMC World yesterday, touted the company's moves into flash-based storage as a revolution that will transform the industry over the next several years.

STEC has the design wins at EMC. I was negative on STEC the other day. It was a mistake. They're likely to enjoy a healthy ramp in SSD drives as they've got first mover advantage with a lot of enterprise customers. And the notebook business hasn't really begun yet. I'm going to be a buyer of STEC on weakness.

Lam Research (LRCX) comments at JPMorgan

They think shipments are lousy this q and flat next q and that orders and shipments start to pick up after that... so they're calling a bottom also, like Applied Materials (AMAT) did the other day.

Semicap investors will like this kind of talk. I wish the stock were in the mid to high 30s instead of over 40 but it probably drifts higher on the comments... especially in light of the further rise in DRAM contract [+3 to 5%] for 2H May posted DRAMexchange.

Monday, May 19, 2008

Sandisk (SNDK) comments on product gross margin guidance

They were asked whether the product gm guidance was because of cost or pricing. Co saying they're the low cost producer and its not that. It's pricing by competitors. Industry cannot continue to bring pricing down by 60% a year because costs can't go down that quickly... even if you're perfect. Expect 50-55% cost reduction and expect pricing to decline by 50-55%. If we're off, will have an impact either way.

Sandisk presentation at JPMorgan

Contract and spot pricing firming up. iPhone 3G moving into center stage and is an important catalyst for soaking up supply

Think in second half of the year wiil be pickup in demand that will bring excess supply into balance. Expect consolidation in 200mm fabs and pushouts of 300mm capacity to further reduce supply.

Larger players – Samsung, Toshiba, Sandisk, continue to ramp supply. Expect 120-140% more megabytes this year vs last year. Plan to build 150-170% more than last year @ Sandisk.

Still in the depths of down cycle. Expect 2Q to be lowpoint. Not demand driven, its excess supply driven. Gross margins unsatisfactory for all suppliers.

Optimistic for long-term because of new markets we see.

Nothing very different fundamentally this year vs last year. Last year iPhone expectations were exaggerated perhaps. Nice thing about some of our markets is when you have a hit product that is able to make a big difference in terms of absorption of NAND supply can benefit from being in the market despite not serving the customer. Don't serve Apple but they soak up supply. Same with SSD, they think.

Typically don't discuss quarter intra-quarter… most of revenues come in second half and this will be the same. April continued to be very soft. In line with what we saw in first quarter. Good uptake in EMEA. $127 crude oil and $4.20 gasoline doesn't help consumer spending. Impact should not be underestimated. Nothing anyone had in their calculations 4 months ago.

Consumer electronics, mobile and computing are the major markets for products. Consumer elec opportunity is to replace optical media as we did with film and floppy drives. Not like digital cameras. Camcorders shifting to flash. Gaming shifting to flash. Continuing to provide a variety of markets not the size of mobile but still substantial.

Mobile relatively young. People still don't know why they need flash in their handsets. See opportunity for market to blossom… both iPhone and smartphone are big opportunities. Expect 16/32/64gb opportunities there. Attach rates improving and that's the mission. Successful in this market and will be several year opportunity.

Solid state disks have not yet begun. Crowd just showing up to buy popcorn waiting for ball to be thrown. The more time passes the more exciting the market becomes. Ultimate price elastic market. Tremendous opportunity in enterprise, desktop and notebook to drive demand at levels that have not been seen at this point, particularly in the consumer space. Independent marketing research firms could be off by a factor of 2-5 by 2011… conservatively. Add the hockey stick we expect in next 2-3 years will really change the dynamics of the market. Will require unprecedented scale for the industry.

Late to the market with MLC SSD products. Expect to start sampling by end of the year. Killed internal project based on 56nm and redirected to 43nm… took the hit up front and hopefully will be the right decision when market really takes off in 2009. Enterprise space may adopt flash at faster rate than had thought. Most people expect adoption in notebooks first. In fact, what we see is there's a huge amount of activity in enterprise space… not price driven, its performance driven. A number of niche players that could do well in specific markets. Could do quite well in 2009.

Msystems SSD was designed for industrial market. Used SLC. Shipping it now… doesn't use Sandisk flash because they didn't want to have to requal. Not optimized for notebook computer. Requires tremendous amount of development. That's the delay.

… they're still talking. If they say anything important I'll throw it up.

EMC up on Barron's, general tech strength

EMC featured in Barron's as a potential takeover candidate for Cisco. I think IBM makes more sense. The stock has had a 20-25% move since I bought it and there's a long-term trendline here in addition to the 200 day moving average... so I'm letting some go.

I still like EMC generally and it's pretty cheap if you can figure a way for them to get out of VMW without destroying the public market for the stock. If you do, I'm sure they'd love to hear it.

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