Skip to main content

Finally a bottom in NAND pricing?

I have written before about SanDisk (SNDK) and have owned the stock several times over the years. Recently, the stock seems to have bottomed at about $20 and has now rebounded to over $30.

Today's strong move up was due to a bullish opinion on the company from Citigroup's Craig Ellis. He sees the stock hitting $35 based on tier-1 OEM customers poised to provide large orders, more products designing in ever greater quantities of flash (solid-state disk drives, for example) and a supply environment more conducive to firming prices.

Ellis could be right in his call. SanDisk reported earnings in mid-April that were less than expected but revenues that beat expections. Management pointed to tough pricing that kept margins under pressure.

So has NAND pricing finally hit bottom? Let's hope so. To show how serious the pricing pressure has been, the unit price of the benchmark 8Gb NAND flash chips for high-end handheld devices declined to $2.7 from $8 last September. Here is a quick survey of several sources that might shed some light on the subject.

First, we have a report today from DRAM Exchange. Here is the money quote: "demand for NAND Flash will improve as end product makers stock up in anticipation of 2H08 hot season. Because of the reduction and relatively conservative capital expenditures, we expect oversupply in 2Q08 will improve and reach a balanced condition in 3Q08. Subsequently, we expect NAND Flash price to stabilize and gradually rebound as the 2H08 demand increases."

Next we have a couple of reports from the Korea Times. The first one, from 3-27-08, supports our thesis that supply has stopped growing at a rate exceeding demand. The report states that Hynix Semiconductor, the world's No. 2 memory chip manufacturer after Samsung Electronics, said it will curtail its investment in chip production lines in the latter half of the year as unit prices of both memory and flash chips have fallen below the break-even point.

The second report from the Korea Times, posted 4-3-2008, pertains to Samsung. In this case, the manufacturer has said it has no intention of reducing output.

Finally, there was a report from from 5-9-2008. The title of the post says it all: "Memory Prices Heading Up." The post quotes Nam Hyung Kim of iSuppli as saying that OEMs used inventory from mid-Q1 to mid-April, resulting in very few orders. This also reduced the amount of memory being ordered, which forced memory makers to cut back their manufacturing. "Price is going up because now is the time for OEMs to acquire more inventory," Kim said. "So we are detecting a lot of orders from OEMs that aren't just for now, but so they can build some inventory for the holiday season. Prices are pretty much at the bottom. If we expect prices to go up, then the best time to get it is now."

So once again, have we really seen the bottom in NAND flash pricing?

Despite Citi's Mr. Ellis, I can't agree that the answer is a clear cut "yes". Hynix has stopped investing in more capacity but, as far as I can tell, they have not actually reduced output of current manufacturing capability.

The good news is that demand appears to be increasing. Some of this is a seasonal effect as manufacturers ramp up for holiday sales. As Mr. Kim of iSuppli says "Flash demand is 85 to 90 percent consumer-driven, and consumer demand slowed down due to weak consumer confidence. NAND flash should be more sensitive to the economic conditions."

So we see that finally we are dependent on the stretched consumer to put a bottom in for the NAND industry by stepping up and purchasing electronic gadgets and PCs. This leads us to the question of whether the consumer has the ability to keep spending on non-essentials in the face of rising gasoline prices, falling housing values, a shaky job market, etc. That, I'm afraid, is a discussion for another time.

Disclosure: at time of writing, author has no position in SNDK


Popular posts from this blog

Unlock Stock Market Profits - Key #1

This is the first in an ongoing series of articles where I discuss what I feel are keys to successful investing. It is based on a post that provides a summary of the ten keys that individual investors should use to identify profitable stock trades. ( Click here to read the original post ) There are two basic steps to investing. First, you need to find stocks that seem to have some potential. Then you have to determine whether these stocks are actually good investments. There are many stocks that at first glance look interesting, but further research reveals that there are too many negatives to warrant taking a position. This first post in the series starts at the beginning: getting good investment ideas. Key #1: If something special is happening to a stock, it will be reflected in some kind of unusual activity in the markets. As individual investors, we will never be the first to know; however, unusual activity can be an early sign that allows us to follow the Wall Street profess

Unlock Stock Market Profits - Key #4

This is the fourth article in a series of posts describing 10 tools to help you identify and evaluate good investing ideas. It is based on a post that provides a summary of the ten keys that individual investors should use to identify profitable stock trades. ( Click here to read the original post ) With this fourth post, we will continue another step along the path of finding stocks that seem to have some potential. The first post in the series discussed how to use unusual activity to identify investing ideas. The second post described how to use stock screeners. The third post described how to use lists of new highs and new lows. This post will focus on identifying social or business trends in order to find investing ideas. Information on new trends might turn up anywhere. In conversation with friends or business associates, in newspapers or magazines, on TV or though your work. The key is to be aware of trends and how they start, stop or change. We'll start by describing wh

Interactive Ads - Google one-ups Yahoo again

Google's ( GOOG ) press release describing the expansion of a beta program for what are being called Gadget Ads has again shown that Google is unparalleled at melding technology and advertising to benefit its bottom line. Gadget Ads are mini-web pages or "widgets" that can be embedded within publisher pages. I have written in the past on Yahoo's ( YHOO ) Smart Ads and how, by more precisely targeting site users and adjusting ad content accordingly, they provide a much desired evolution of the banner or display ad format. Though Smart Ads and Gadget Ads are not really the same, I think it is fair to say that Google has seen the challenge of Smart Ads and has chosen to leapfrog Yahoo by rolling out its own update to the display ad format. The evolution of the Gadget Ad -- One of the trends on the Internet over the last year or so involves software developers creating "widgets" which can be hosted within web pages and blogs. Widgets can be pretty much any