The world economy is slowing"
Just as we have been asking,
is the economy really as strong as headlines claim? It's all well and good that Goldman Sachs will pay out $16B+ in
bonuses in the next 30 days or so but what are the rest of us really experiencing? Are good-paying jobs plentiful?
Did you get a raise this year?
"Industry capacity
…can demand stay ahead of suppliers and productivity improvements
...and keep prices from collapsing?"
This is the elephant in the room nobody wants to recognize.
Demand must keep ramping up to keep prices from collapsing. Demand at today's high levels won't get it done.
Demand must continue to increase.
Given NAND prices were down -44% to -73% when this
was written in October, how much worse would NAND prices be in the case of this dreaded lack of demand growth?
Denali goes on to say:
"Success of 2006 hinges
on final four months & NAND price stabilization
Steady and growing economy critical to
2007 outlook"
Readers
of our last NAND piece know that prices recovered in October from ~July, 2006 lows. However, our readers also know NAND
prices then plunged in only six weeks to the lowest levels of 2006. Is this a canary in the NAND demand coal mine?
"Today’s surprising DRAM price stability
‘could go on for a while’…2007+….
It is increasingly a ‘DRAM + Flash’
world (even ‘SRAMs’ are ‘DRAMs’)"
Remember when the DRAM guys were getting credit, and increased
P/Es, for cutting DRAM wafer starts? How do you suppose Wall Street likes them now?
Those Denali comments appeared below a graph. Estimating
the sales figures from this bar graph, the basic data reads as follows:
$Sales $Profits
GP%(implied)
1999 $32B $2.2B 7%
2000 $50B $7.0B
14%
2001 $25B -$13.5B -54%
2002 $28B -$6.2B -22%
2003 $32B -$6.3B -20%
2004 $48B $6.5B
14%
2005 $49B $3.2B
7%
2006 $57B "??"
--?
2007 $75B "??"
--?
Given the severe NAND price decline since this was written in
mid-October, is +16% top-line sales growth still possible? Recent NAND price declines figure to hit the profit numbers,
regardless.
You will also notice 2000 sales grew ~56% from 1999
and 2004 grew ~50% from 2003. Both years saw a "strong" 14% gross profit.
However, 2005 saw mostly stable DRAM prices and ~40% NAND
price declines to net out only ~2% growth compared to 2004-- and profits plunged 50%!
What do you get at 16%? (Or at less than 16%, after 4Q06
NAND pricing declines are factored in?)
Can 2007 still achieve the projected 32% growth in the face of
faster-than-forecasted price drops in the highest-growth commodity?
Conclusion:
Denali doesn't show the data but states 2006 is +8% from 1995's
then-record $53B in sales but profits on 2006 will be only one-half to one-third those in 1995. How many places have
you heard this info?
How many services touting NAND and DRAM suppliers actually understand
this condition?
Given 2006 YTD NAND price declines up to -80% shown earlier,
what will be the impact on 2006 industry profits? What about in 2007 when prices start from such levels?
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The above is not intended as advice to buy, sell or hold any stock, bond, real estate nor any other
financial product or service. Buy and sell at your own risk (just like we do.)
