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Technology Stocks : Semi Equipment Analysis

SOXX 314.52

-0.6%

Dec 11 4:00 PM EST

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To: Donald Wennerstrom who wrote (48598)	7/21/2010 1:56:58 AM
From: Sam	1 Recommendation Read Replies (1) of 95572

SanDisk earnings preview from Morgan Stanley NAND Supply Discipline to Last Longer than Most Think Remain OW: We remain constructive on 2H NAND memory fundamentals driven by increasing smartphone and tablet units offset partially by slow retail card demand for digital cameras, particularly in Europe. Recent results and comments by equipment suppliers at SEMICON tradeshow indicate constrained NAND supply in the next 12-18 months. As such, we believe NAND fundamentals will remain stable through 2011 or longer than most investors think. Longer-term, we continue to view SNDK as the best derivative play on rising smartphone (exposed to 5 of top 10 handset makers) and tablet (Apple) demand. NAND Lithography Equipment Backlog Remains Low: A leading indicator of future supply, NAND backlog of lithography equipment remains low ~ 15% or below historical average of 35% (Ex 1). We believe NAND makers remain conservative on adding new capacity given uncertainty on timing of EUV, next generation lithography, required to manufacture NAND devices beyond 2x nm. Stress Test on New Fab Capacity Shows Balance in 2011: Assuming NAND makers fully ramp the current available fabs (reasonable) plus two under construction (aggressive) by the end of next year, our analysis shows maximum bit supply growth of ~86% or roughly in-line with our 85% bit demand growth expectations (Ex 2). As such, we believe oversupply concerns on next year capacity announcements are overstated. Preview: SNDK reports 2Q earnings on 7/22. We model 2Q rev/EPS of $1.19B/$0.98, above consensus of $1.15B/$0.90. We expect GMs to be at the high end of guided range on better ASPs (down ~6% Q/Q) and cost reduction (down ~8% Q/Q). We model 3Q EPS at $1.09 or above consensus of $0.95 on stable margins and further share gains for MCPs at handset OEMs.

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