Multi-Company Report

Multi-Company Report

April 20, 2018 | Equity Research IT Hardware, HDD/SSD, Mobility & Networking Weekly IT Hardware & Feedback on Apple & HDDs (WDC / STX) Communications Previews, NAND Pricing… Networking Investor Feedback on Apple & HDD (W. Digital & Seagate) Previews: Following our detailed preview reports on Apple (link), W. Digital (link), and Seagate (link), we thought we would highlight some investor feedback: (1) Apple – An Abrupt Shift in Sentiment (from “It Doesn’t Matter” to “How Weak?” – re: iPhone): We received little investor pushback on our consistently cautious view and now reduced iPhone ship estimates (50MM in F2Q18 and ~40MM in F3Q18) given our analysis of ongoing weak demand data points through C1Q18. This was supported by TSMC’s disappointing 2Q18 outlook / comments on high-end smartphone weakness (Apple accounting for +20% of TSMC’s revenue in 2017). We found investors increasingly focused on blended iPhone ASP ($/unit) downside vs. our $750 estimate (downside to ~$720-$730 range?). We think investor sentiment is expecting a $100B+ share repo authorization (2-3 year timeframe) and 30%+ dividend increase (upside into the 50%+ range; vs. +11% avg. over the past 4 years). (2) HDDs / Flash –Nearline HDD Upside; A Wait-and-See Approach to Flash / SSD Trends: Nearline HDD demand sustainability into 2Q18 / through 2018 will be a key focus following what is expected to be strong 1Q18 results (e.g., IDC’s prelim estimates implying 85%+ yr/yr capacity ship; +20% q/q). We continue to find few investors asking about Seagate’s HAMR vs. WD’s MAMR tech for next-gen (16TB+) high-cap HDDs, though we think this will become more important through 2018. We model WD’s Flash bits shipped at - 6% q/q; -9% blended ASP ($/GB). Focus on pricing trends into 2Q18 and tightening supply / demand set-up into 2H2018. Please see our WD and Seagate EPS scenario analysis on pages 18 and 21. NAND Flash: Key Questions / Considerations When Thinking About Industry Pricing Data. We think NAND Flash pricing concerns are overdone. As we continue to field a lot of investor questions on Flash pricing trends – spot vs. forward contract pricing trends (via InSpectrum & DRAMeXchange) - we think there are some important (overlooked) considerations: (1) How Much Flash Volume is Sold in Spot? While spot pricing has led contract pricing trends (focus being on 128Gb TLC NAND trends over the past few weeks – implied avg. at - 11% q/q in 1Q18, per InSpectrum; DRAMexChange doesn’t track any TLC pricing), our discussions suggest that there is very little Flash sold on the spot market. (2) What’s Exactly Tracked (~60% of Total NAND Flash Bits Shipped at 256Gb – Not Tracked)? While DRAMeXchange doesn’t track TLC NAND (IDC est. at ~60% of total Flash bits), we would also note that InSpectrum data doesn’t include any 256Gb MLC / TLC pricing, or ~80% of total TLC Flash bits shipped Aaron Rakers, CFA in 4Q17; ~60% of total Flash (IDC estimates). (3) What About Cost Senior Analyst|314-875-2508 ($/Gb) Execution? We think a key focus through 1Q18 earnings (and aaron.rakers@wellsfargo .com thereafter) should be on each companies’ comparative expectation / Joe Quatrochi, CFA ability to execute on bit production cost declines – e.g., WD has Associate Analyst |314-875-2055 consistently highlighted a ~20% per annum cost reduction with 3D [email protected] NAND technologies (i.e., utilization ramps, tech. transitions [64L to Jake Wilhelm, CPA 96L], string vs. single-stack, die size shrink, CuA, etc.). Associate Analyst |314-875-2502 [email protected] Please see page 27 for rating definitions, important disclosures and required analyst certifications. All estimates/forecasts are as of 04/20/18 unless otherwise stated. 04/20/18 17:25:36 ET Wells Fargo Securities, LLC does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of the report and investors should consider this report as only a single factor in making their investment decision. IT Hardware & Communications Networking Equity Research Continued… The Week Ahead – A Few Highlighted Thoughts: Earnings season will be in full swing this week (see our earnings calendar / points of derivative focus on page 3): 1. NAND Flash Commentary (SK Hynix, Samsung, & Western Digital): In addition to the aforementioned thoughts on NAND Flash pricing trends / considerations, we will be focused on commentary related to NAND Flash supply / demand and pricing trends and 3D NAND progression (64-layer yield ramps / cost reduction expectations, 96-layer and QLC timing?). 2. Nidec Results (4/25; before market): We will be focused on Nidec’s results / outlook commentary as providing validation to what is now an anticipated strong HDD earnings season driven by high-cap / nearline HDDs. As a reminder, Nidec is the leading HDD spindle motor provider and has continued to maintain a ~100% share position for helium-filled high-cap HDDs. 3. iPhone Demand Data Points (Verizon & AT&T Upgrade Rates): Smartphone upgrade rates in focus (e.g., iPhone 8 / X cycle); Wells Fargo Analyst, Jennifer Fritzsche, estimates flat yr/yr upgrade rate trends for Verizon and AT&T at 5% and 4%, respectively. 4. Cloud Capex: A number of cloud capex data points will be released this week – Google, Facebook, Microsoft, & Amazon. Forward spending commentary will be a focal point following strong high- capacity HDD capacity shipped in the March quarter (IDC estimates +87% yr/yr). In addition to the high-cap HDD read-throughs, we would note that our industry discussions have suggested that 50%+ of total enterprise SSDs are consumed by the hyper-scale cloud vendors. We expect a derivative focus on cloud capex related to Arista (30%-50% of total revenue derived via the cloud vertical; Microsoft historically representing the only 10%+ customer at 16% over the past two calendar years). Wells Fargo Tracking of Job Listings: Our weekly tracking of job listings would highlight (1) the lowest level of Commvault job openings since 2011 – we believe notable following Elliott Management’s announced involvement. (2) Nutanix’s total job listings stood at 571 exiting last week (~50% sales- related), representing the highest level we have seen and up 50% since the end of 2017. We continue to view Nutanix’s open job listings as reflective of ongoing strong fundamentals. (3) The number of Pure Storage sales listings declined for a fifth consecutive week after reaching an all-time high in mid-March. 2 | Wells Fargo Securities, LLC 3 IT Hardware, HDD/SSD, Mobility & Networking Weekly Networking & Mobility HDD/SSD, Hardware, IT March Quarter Results Calendar – 4/23-4/27 (Week #2): | Wells Fargo Securities, LLC Securities, Fargo Wells | Time Domestic Int'l Company Ticker Date (ET) Call in # Call in # Passcode Key Topics / Thoughts: Focus on cloud-demand related commentary. We will also be interested in thoughts on capex/datacenter build-out Alphabet (Google) GOOGL 4/23/18 4:30 PM n/a n/a n/a trends and thus a read-thru for HDDs / networking equipment. Updated thoughts on NAND Flash demand, pricing, and 3D NAND commentary. SK Hynix previously guided SK Hynix 000660-KR 4/23/18 8:00 PM n/a 82-31-810-3061 5796 NAND bit ship down low-single digits seq. in 1Q18; bit ship +40% yr/yr range in 2018. Focus on enterprise software demand; geographical/vertical-specific and cloud-related comments of interest. We SAP SAP - DE 4/24/18 8:00 AM 929-477-0353 44-0-330-336-9105 8849562 continue to be interested in SAP's views on convergence between software and hardware strategies. Corning GLW 4/24/18 8:30 AM 800-230-1074 612-288-0329 n/a Gorilla Glass used on iPhone screens Apple: iPhone / smartphone upgrade cycle dynamics - Wells Fargo Telecom Services Analyst, Jennifer Fritzsche, Verizon Communications VZ 4/24/18 8:30 AM 888-455-3018 773-799-3816 VERIZON estimates Verizon's upgrade rate at 5% in 1Q18, flat vs. a year ago. Networking: Capex spending trends & 5G commentary Texas Instruments TXN 4/24/18 4:30 PM 323-794-2093 323-794-2093 5467397 Interested in derivative thoughts on server market. LG Display 034220-KRX 4/24/18 9:00 PM n/a 60-3-2718-4788 658594; 72048 Apple-related commentary Canon 7751-JP 4/25/18 2:00 AM n/a n/a n/a Derivative read-thru for HP's printer division; Canon remains primary/sole provider of printer engines into HP Inc. Capex spending trends; continuing to focus on cloud / internet-related capex spending, though noting that Twitter is Twitter TWTR 4/25/18 8:00 AM n/a n/a n/a relatively small when compared to others (Amazon, Google, Microsoft, etc.) TE Connectivity TEL 4/25/18 8:30 AM 800-230-1092 612-288-0329 n/a 100GbE Ethernet demand commentary Largest provider of HDD spindle motors. We will be interested in the company's enterprise spindle motor shipments as Nidec Corp 6594-JP 4/25/18 9:00 AM 800-239-9838 44-0-800-358-6377 NIDEC well as forward looking commentary. We believe mix of helium-related shipments will be an interesting data point. Amphenol Corporation AMPH 4/25/18 1:30 PM 888-455-0949 517-623-4547 LAMPO Component supplier for iPhone antennas; commentary on 100GbE Ethernet adoption F5 Networks FFIV 4/25/18 4:30 PM 800-593-9913 212-287-1824 F5 Networks IT Spending / networking demand trends Apple: iPhone / smartphone upgrade cycle dynamics - Wells Fargo Telecom Services Analyst, Jennifer Fritzsche, AT&T T 4/25/18 4:30 PM 866-232-4457 612-332-1213 n/a estimates AT&T's upgrade rate at 4% in 1Q18, flat vs.

View Full Text

Details

  • File Type
    pdf
  • Upload Time
    -
  • Content Languages
    English
  • Upload User
    Anonymous/Not logged-in
  • File Pages
    28 Page
  • File Size
    -

Download

Channel Download Status
Express Download Enable

Copyright

We respect the copyrights and intellectual property rights of all users. All uploaded documents are either original works of the uploader or authorized works of the rightful owners.

  • Not to be reproduced or distributed without explicit permission.
  • Not used for commercial purposes outside of approved use cases.
  • Not used to infringe on the rights of the original creators.
  • If you believe any content infringes your copyright, please contact us immediately.

Support

For help with questions, suggestions, or problems, please contact us