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Technology Stocks : WDC, NAND, NVM, enterprise storage systems, etc.
SNDK 195.96-20.3%Nov 20 3:59 PM EST
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To: SiliconAlley who wrote (3722)5/14/2018 10:13:11 AM
From: storage_savant1 Recommendation

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Shifts do not occur overnight from a $3 device to a $4 device (using today's numbers), increasing revenue. Demand shifts to higher capacity occur after price per bit has come down. So the true demand shift is from this year's $x device to next year's $x higher capacity device. The shift to higher capacity does not increase revenue, but avoids a decline in revenue. Which is why a reduction in smartphone shipments reduces both demand AND revenue.

This is a generalization that isn't always correct. Phone makers don't have a fixed budget that they are willing to spend on storage. Of course, in a vacuum they will always want to spend less, but there are other considerations like competitive parity and the demand that any new technologies have on storage requirements. This thesis additionally ignores the mixture of configurations that consumers can pick from, where the higher end includes higher capacity memory. If more consumers choose higher end configurations they will purchase more capacity. As the cost per bit declines from generation to generation, companies may choose to increase their memory budget in order to move to higher capacity points. In fact, the JPM report this morning seems to imply this is exactly what is happening:

For example, we believe a majority of the gross margin decline this quarter (~200 bps decline) is due to a the seasonal mix shift towards lower margin products like game console HDDs (seasonal mix is up around 40% Q/Q), higher smartphone MCP mix within the NAND portfolio and a higher client (PC) SSD mix.

MCP stands for multi chip package. So MS predicts the average number of memory chips in a smartphone will increase. This will result in more revenue on average per smart phone, even when incorporating per chip price declines. Why is this happening? It could be either of my two points above. Either smart phone vendors have decided to increase their memory budget on base models, or consumers are electing to go to higher price points more frequently. This was exactly Art's original argument, although I admit he made a couple of minor errors in describing how this would happen.
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