Friday, March 16, 2007

Calls of Note Part 6

Oppenheimer says they are seeing NAND flash pricing stabilizing and module manufacturers scrambling to build spurring demand - positives for SanDisk (NASDAQ:SNDK).

Firm's channel checks with leading Taiwanese flash module manufacturers - Transcend(#3), A-Data (#4) - indicate Flash prices moderating and module manufacturers scrambling to build inventory post Chinese New Year.

Outlook for the June quarter is for NAND ASPs pricing declines to be much more moderate, with June quarter capacity addition more muted. On the supply side: Samsung's output in Q406 was almost 70% at 63nm. Samsung continuing at 63nm, and has not added significant capacity in Q1 and not adding significant capacity in Q2, continuing output in Q1/Q2 on 63nm. Believe Samsung 51nm which could add to supply will be a mid to late Q3 event. Given that Samsung is still on 63nm in 1H07, firm believes it is being less aggressive on pricing since it does not have any cost levers. Nevertheless, Samsung is working aggressively on 51nm. Also, Samsung has not changed its NAND/DRAM allocation since moving 50% of capacity on its new fab to DRAM in Dec-06.

Also Samsung's move into retail card market appears to be much more exaggerated than actual reality. With a lack of brand, or retail distribution pipeline, firm estimates little to no risk to SNDK.

Toshiba appears to be the most aggressive in capacity additions in 1Q/2Q, pulling in 56nm - but has also been less aggressive in pushing prices. Flash card OEMs seeing SNDK/Toshiba gaining flash card market share in 1H07 over Samsung and Hynix.

Also NAND spot prices for the 2 weeks ending Mar 15th are down only 3% for 1Gb, 1% for 2Gb, 1.5% for 4Gb a substantial moderation. Firm reiterates Outperform rating on SNDK with a $50 PT.

Notablecalls: Not much new as Oppenheimer was upgrading the shares just a few days ago based on stabilizing prices.

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