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To: niek who wrote (5634)	7/27/2007 1:53:00 PM
From: etchmeister	Read Replies (1) \| Respond to of 5867

Next year Hynix will navigate a transition toward 12' from 8' capacity, a significant shift that looks set to begin in earnest in 1H08 (from ~80% of NAND output on 8' exiting C07 to <20% exiting C08), sharply curtailing C08 supply growth until 2H. Recall about 90% of SNDK's supply will be produced on lower-cost 12' wafers exiting 2007. If I recall correctly 2/3 of Hynix capacity is @ 200mm (I recall Sammy @35%). Cit's chip analyst seems to be aware of the 200mm/300mm situation while the Citi's SCE analyst kind of ignores the fact. But probably only a few die hards follow Hynix - including the SNDK. This is great data for us small fish investors - JMHO To: Pam who wrote (36881) 7/27/2007 10:43:56 AM From: Sam of 36882 Citi comments on Hynix, NAND, Sandisk SanDisk Corp (SNDK) Mixed NAND Implications from Hynix Results and Outlook * NAND Newsflow Persists - Thursday's Hynix (000660.KS, Choi) (~20% global NAND supply) results offered forward looking implications for NAND fundamentals and SanDisk investors. * Hynix 2Q07 Looks Benign - Shedding light on tight mid-yr fundamentals, bits shipped actually FELL qq (60nm yield issues, 1Q07's NAND shift to DRAM), squeezing the company's end-Q inventory to 1 wk. Pricing jumped 25%. * But 2H07 More Aggressive - Off 1H07's lower base, Hynix expects 100% 3Q07 bit growth (limited DRAM wafer shifts, new NAND wafers, finer geometry), and flat 3Q pricing from end-July (but a price decline overall on three factors: 1) a mix shift to contract mkts, 2) contract buyer price discounts, and 3) higher avg density mix). Further out, the company expects FY07 bit growth of ~155% (we had expected ~135%). * Expected 2008 Bit Growth Decelerates Sharply - Hynix foresees ~120% bit growth in 2008 (we expect industry avg of ~140%). Next year Hynix will navigate a transition toward 12' from 8' capacity, a significant shift that looks set to begin in earnest in 1H08 (from ~80% of NAND output on 8' exiting C07 to <20% exiting C08), sharply curtailing C08 supply growth until 2H. Recall about 90% of SNDK's supply will be produced on lower-cost 12' wafers exiting 2007. * Mixed NAND Implications Overall - While naturally concerned with implications of 3Q's bit growth bogey on the mid-to-late 4Q07 supply/demand balance, our caution is tempered by the following factors: 1) fieldwork indicating robust 3Q07 tier-1 OEM demand at Hynix, 2) indications tier-2/3 product players are on allocation until Nov, 3) the looming pre-holiday build, 4) the encouraging sign of supply growth deceleration next year, and 5) the potential for upcoming manufacturing transitions for industry to proceed slowly (like 1H06) limiting supply growth. * Reiterate Buy on SNDK Shares - Buy-rated SanDisk remains a high-conviction top pick with 25% upside to our $71 target. Valuation looks benign (19x CIR 08E) while drivers to the next leg up in the shares include: 1) Meaningful positive Street EPS revisions in 2H07, 2) new product activity (AAPL, others) in 3Q07, 3) favorable 2H07 contract pricing trends, and 4) handset demand following early-1Q08 CES and 3GSM launch activity.