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July 20, 2007
 
View From Silicon Valley- NAND Update, Apple Comment
 
(c) copyright View From Silicon Valley, 2007.  All rights reserved.
 
 
 
We're going to end up with some news on Apple but first a few comments on semiconductors in general.
 
The shills and dead fish proclaim semiconductor stocks are strong and getting stronger.  SIA numbers are broadly up (http://www.viewfromsiliconvalley.com/id257.html), although profits, as seen in Intel's finances and Micron's layoff's, are hardly roaring.  But the stocks are going up, so who cares?
 
Similarly, a 2% sales increase reported by KLA-Tencor boosted the entire SEMI sector.  While total sales were up in the most recent report, the B:B ratio was negative for the sixth straight month (tenth in the last eleven, http://www.viewfromsiliconvalley.com/id52.html).  But the stocks are up, so who cares?
 
We have all the latest NAND prices.  The latest numbers show prices are down 75% to 80% in 18 months but they're up from ~February lows.
 
            1Gb    2Gb    4Gb    8Gb   16Gb
01/01/06  $8.95  $8.89 $14.98 $57.40 $84.78
04/25/06   4.00   5.00   8.00  17.58  35.75
07/31/06   3.04   4.73   7.49  12.40  25.67
10/23/06   2.76   5.01   7.89  15.33  33.98
12/11/06   2.52   4.17   6.89  11.38  22.09
02/12/07   2.51   2.61   3.72   6.19  12.38
04/23/07   2.21   2.32   4.40   7.35  16.25
06/25/07   2.30   3.25   5.43   8.29  17.93
07/09/07   2.81   4.82   8.41  10.90  20.73
 
We spend time tracking these figures and thought you might enjoy.
 
In the semiconductor business, prices often drop at the end of a quarter, when suppliers tend to blow out inventory to make their numbers.  Then prices at the beginning of a quarter almost always go up.  After all, the next "crisis" to make financial goals is still 90 days away.
 
These numbers are extracted from DRAMeXchange who also included an interesting write up on Apple and the iPOD:

"Last Friday's iPhone launch and upcoming upgraded iPods in Q3 set to affect NAND Flash demand & supply

Apple's highly anticipated iPhone was officially launched last Friday (June 29th), where people queued up in long lines to purchase the new stylish phone. According to a survey by Piper Jaffray & Co, an investment company, in just two days, roughly 50 thousand iPhones were sold, more than the original projection of 20 thousand from other research institutes. The reason behind the iPhone hype lies in Apple's successful marketing campaign in creating a technology product that is both trendy and unique among the public. Take the latest iPhone for example, the outer appearance follows the same simple design as Apple's other hit product--the iPod. As shown in Figure-2, the innovative 3.5" touch-screen (excludes the required keypad for normal handsets) allow users to easily browse the Internet or watch high-resolution videos.

Based on surveys conducted in New York, San Francisco and Minneapolis by Piper Jaffray & Co, during Day 1 of the iPhone launch, 90% of the buyers preferred the 8GB model. With only a US$100 price difference with the 4GB model, the doubled storage capacity proved to be a very appealing among consumers. The Flash used in the iPhone is said to come mainly from Samsung, where its Flash business have been significantly boosted by the hot iPhone sales. Samsung is currently the world's largest Flash supplier. With the iPhone taking a high priority in Samsung's Flash orders, it may affect the overall Flash market in 2H07. 

DRAMeXchange conservatively projects roughly 4 million iPhones will be shipped in 2H07. In 2008, the product will account for 1% of the worldwide cell phone market, or in other words, about 12 million iPhones will be shipped. If the shipment ratio between the 4GB and 8GB are the same in 2007, roughly 192mn (in 1Gb equiv.) Flash chips will be consumed by Apple's new cell phone. This figure will represent 2.4% of the overall Flash supply in 2H07, which is not particularly high. However, by looking at the iPod sales figure in the past few years, Q4 usually marks the strongest sales period during the year (as shown in Figure-3), which also holds true for the cell phone market. If Apple wishes to generate strong iPhone sales during this year's Christmas season, the stocking up of the Flash inventory would need to begin in 3Q07, where it will represent 5.7% of the quarterly market output. If Apple also unveils upgraded iPods in Q3, which may include new iPod video products that employ Flash for storage, the required amount in 3Q07 from both the iPhone and iPod will be more than 25%. Therefore, with Apple's products given a high priority in the Flash supply, the future sales of the iPhone will most certainly affect the NAND Flash market in 2H07."
apple_ipod_shipments_2007-07-17.jpg
Conclusion:  We would not be surprised to learn Apple treats their NAND suppliers, and maybe even tries to tell them, Apple buys 25% of the NAND market.  Do you imagine suppliers argue with Apple over this claim during negotiations?
 
We would be surprised to find objective data showing Apple buys even 10% of the market.  How does DRAMeXchange make the leap from iPhone over-achieving Apple's own goals and reaching 1% of the global cell phone market (12 million units) and this represents 5.7% of the global NAND market?
 
Or maybe Nokia, Motorola, Samsung and all the other cellphone suppliers are standing idly still, planning to get by with one sixth of Apple's 4GB and 8GB.

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The above and any linked article, website or advertisement are 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.)