Forgot to mention a key omission from the ML report:
Counter to STX expectations, ML sees STX gross margins declining by 50 bpts YoY in FY15.
Besides providing plenty of cut and paste from IDC and Trend Focus reports, here are the noteworthy points.
1, Despite seeing 2015 non-GAAP earnings growing 4% in 2015 to $5.56, he goes to sell???????
2. ML cites 2Q HDD TAM tracking below expectations
Old news, O'Malley indicated on Monday at Morgan Stanley that history has shown strong demand in March has overcome weak prior demand
3. ML cites higher relative exposure to PCs that face tougher comps in 2015.
The ratio of enterprise drives to client compute drives shipped last quarter was 0.25 for STX and 0.19 for WDC, which ML rates as a hold.
ML projects enterprise drive shipments will grow 5.9 M units YoY in 2016 to 79.7 M, while combined mobile and desktop shipments will drop by 13.5 M units to 446.4 M. Due to their higher margins & ASPs, the sale of ONE enterprise provides the same contribution to gross margins as the sale of almost FIVE desktop or laptop drives. So the impact on gross profit of the 2016 projected decline in client compute is more than offset by the projected growth in capacity enterprise units.
4. ML cites headwinds in client and enterprise drive sales from SSDs
STX will be ramping 3rd GEN SAS enterprise SSDs starting 2016 and expects growth in SSD sales.
All-in-all, iMHO a contrived love note for the shorts.
PS-Last week's purchase of 6,000 March 60 STX puts with the sale of 4200 yesterday will hopefully with raise eyebrows in Rockviile.
See post on STX board about the number of STX March $60 put options bought last week. Somebody illegally made a bundle front running the ML report
I am hearing that the favorite flavor of the funds has switched from old tech to growth tech. Give it month or so and the nervous nellies will be whining about valuations of growth tech and looking for bargains that return cash to the shareholders.
To further support my Spring Fling Rally thesis, here is what happened over the period six years along with a couple of my prior posts:
4/11/09-I posted-"since early March STX is up 114% and the market has made a 23% gain on the traditional spring fling rally"
FYI-SP500 went from 735 in early February, 2009 tom 919 by the end of April.
In 2010, market went up 8% between 2/1/10 and 3/31/10.
In 2011, market went up 7% between 3/11/11 and 4/24/11
In 2012, market went up 7% between 1/16/12 and 3/25/12
In 2013, market went up 10% between 2/3/13 and 5/12/13
2/8/14- I posted-"look for an extended rally fueled by liquidity coming from IRA tax contributions for 2013. Good economic news could take us into the low 1900s on the SP500"
By 5/23/14, SP500 hit 1900
Using the SP500 low of 1995 hit on 1/30/15, a 7% rally puts us around 2135 on the SP500 index
After a soft January filled with fears over oil prices, the strong dollar, and the Ukraine, February has the SP500 making record highs. The NASDAQ, the only major index that has not gone to all time highs, is within 2% of its all time high.
Well it's always interesting to read the press as the news hounds try to rationalize the market action. True oil prices have stabilized with the most encouraging signs being the bargain hunting in the group. Crazy Ivan has signed another "cease fire" in the Ukraine, but who knows how long that will last and there was some good economic news out of Germany late last week.
However, of equal, if not greater importance, are the seasonal factors that drive the market, which are overlooked by the press and many retail investors. At the beginning of the year, fund managers make changes to their portfolios, often lightening up on last year's winners, i.e. biotech & transportation, and replacing these investments with potential turnaround stories, oil stocks, housing, etc.
Another seasonal factor concerns money flow into the market. Starting in early February and going through early April, IRA contributions come into the funds. Many funds have limits on how much cash they can hold, so this money must be invested driving the spring fling rally. Over the past two years, the market has moved up 8% and 9% between early February and early April.
Finally, herd instinct about not missing a rally forces the nervous nellie fund managers to dive in, driving the market even higher. The chart monkies know this and play black in the casino.
So enjoy the weeks ahead, but remember all good things come to an end, i.e. early April. Starting next week the shills for the hedge funds will be out in force on CNBC and elsewhere warning about valuations and higher interest rates, IMHO neither of which are a real concern.
First reason, Micron is a U.S. firm and probably easier to deal with.
Could also be a statement about future pricing of 3D versus 2D NAND chips.
Micron is the leader in 16nm, planar flash, while Samsung & Intel are pushing 3D flash. However, it may be 2-3 years before prices for 3D NAND flash chips are lower than 2D planar flash.
Note prior comments about the length of time, 5 years it has taken 3D logic chips (FinFETs) to ramp, and thelogic manufacturers still have not gotten the yields down to match the price points of their customers. As a result, Logic Fabs are adding capacity for planar, 28nm logic chips, see ASML earning call comments about this. It is also believed that INTC reduced its 2015 margin guidance in part because yields for its FinFETs still are below plan.
So, it may be a while before 3D chips offer lower pricing than MU's 16nm planar flash chips. Thus if this is the case, STX would have an advantage sourcing 2D chips from Micron for its SAS SSDs, rather than employing higher priced 3D chips.
MU trails others on 3D flash, but leads on 20nm planar flash. Could be another indication of STX moving up the food chain into storage systems. What do you think?
My focus is on 3D flash. While INTC and Samsung have started or expect to ship 3D flash this year for evaluation, the question is when will $/chip provide a significant savings compared to current planar chips. Some believe not until 2017 or beyond.
After 5 years of development, 3D logic chip (FinFET) manufacturers still struggling with yields and cost. Some believe 16/14 nm FinFET ramp this year will be slower than expected, causing logic chip manufacturers to increase production of planar, 2D chips at the 28nm node
Industry flag ship, ASML indicated at their recent conference call surprising capacity adds for 28nm chips, which caused them to increase their 28nm wafer start forecast for 2015 by 13%.
Noted soft start to year due to headwinds from seasonal effects and weak Euro.
Current PC data indicate sales running down 5% YoY.
Expects back end loaded quarter.
Termed December pricing an anomaly, makes no sense for STX & WDC to go at it. Prices are up on selective drives. Lack of vertical integration and internal production limit what Toshiba can do in terms of gaining share via pricing.
Cited media fab capacity at 85% to 90%, will require capital investment which will plus margins up. WDC same story.
Cited SSD sales running around $100M/qtr, new SSD products should help.
Lowered December quarter drive TAM to 141 M units, matching WDC's estimate.
"All well and good, but does oil-related performance explain the 2x decline percentage-wise of the drive makers yesterday relative to the market?"
A couple of points:
1. STX has a beta of 2.3 and WDC's beta is 1.6, which means for a 1% market decline STX will fall 2.3% and WDC will fall 1.6%
2. Luczo's comments about pricing has sparked old fears.
3. With STX up 20% and WDC up 30% in 2014, some investors may be eager to cash in on their gains.
4. 2. Did not see it in 2013 or 2014, but the short cartel usually pushes the drive stocks down after they report their December results. Goldman's recent "cautionary" note raises suspicions that the forces of darkness want to work a short scam on the stocks.
Chevron also reported net income fell 30% to $3.47 billion, $1.85/share. However, profits included $570 million from asset sales. Netting out the asset sales, net income was down about 45%. Chevron said its average sales price for its crude fell 27% to $67, versus the $47.9 close on Friday. XOM and BP to report next week.
FYI, one of the major drivers of the crude price decline was Iraq's stepped up pumping. You all remember Iraq, our "friend" don't you? The country that we lost American blood in and spent billions on to throw out its murderous dictator. So it will be interesting to see how quickly oil well shut downs in the U.S. and Canada can compensate for Iraq's production and OPEC cheaters.
Interesting note, a few weeks before oil prices started to collapse the Rockefeller trust dumped all its oil holdings. Talk about the smart money!
Once again, US workers take it on the chin as the global power brokers and elite play their games!
Well it's an interesting dynamic that the oil and equity chart monkies are making the most of to generate their beloved maximum contrived volatility (MCV), as they always do.
...and the band played on
So what's currently bugging the nervous nellie PMs and traders? Two things:
A. Oil firms have started to report and the results are not good, big surprise. Yesterday, Shell reported its profits fell 57% to around $773 million. Remember oil has fallen even further since the fourth quarter ended from mid-$70s to now $47. While oil stocks make up about 8% of the SP500, it is still causing nervousness among investors and the 2015 estimates to decline for not just the oil stocks, but also the SP500.
A couple insights here:
1. I have noted recent bargain hunting in some beaten down oil stocks.
2. The 50% cut in oil prices coupled with a corresponding decline in natural gas should put $$$$ in John Q Public's pockets. I estimate a savings of around $1,300/year, $600 for gasoline and the remainder due to lower heating costs, which translates with 100 M U.S. households to a annual savings of about $130 Billion . However, these benefits have not shown up yet in the Analysts estimates while the Oil Analysts have cut there estimates.
B. Problem #2 is with the EU's announced stimulus program, the dollar has further strengthened versus the Euro, now $1.128 versus $1.35 last summer. Other nations could follow suit, further strengthening the dollar. So firms with significant European exposure, like P&G, are reporting lower results as well as lowering their 2015 outlooks. This does NOT appear to be a big issue for the tech firms whose calls I listened to this week.
Two insights about this:
1. Could tilt investors towards firms with minimal European exposure like small caps and some tech names.
2. Puts pressure on the FED to push out any rate increases or just make a nominal one. This concern has also caused investors to shun the bank stocks.
So let's see if the forces of darkness are successful in pushing down the SP500 below the 1992 support level next week. If so, next stop is at the 200 DMA currently 1968, followed by 1850 if the 200 DMA doesn't hold.
In this order:
1. STX mentioned the double p word: "pricing pressure" in cloud and Client compute
2. Drive TAM/Sales projection for March quarter were weaker than expected
3. Europe outlook is uncertain.
4. Higher Opex
5. No mention of how recent acquisitions are doing.
On the plus side:
1. Sees single digit percent, drive TAM growth in 2015
2. Margins should improve, WDC also sees that
3. Component supply tightening, could cause shortages of certain drives ahead
4. Drive capacity up 31% since 2QFY15, higher mix expected to continue
5. Drive ASPs up $1, margins flat sequentially
Storage demand continues to grow .20%, and if the shorts get too aggressive, look for STX to crank back up the share buyback.
BTW, this does not mean there can't be a short term sell off in the shares, but many would see that as a buying opportunity.
Several things have contributed to a quiet stock price and board.
1. We are in a secular bull market so "the trend is your friend"!
Got it hedge fund parasites and Goldman's Billy-BOY?
2. The industry is now essentially a duopoly which limits pricing pressures and inventory bulges, two things the short cartel and their shill Analysts would use to instill fear into the nervous nellie PMs who would usually dump their holdings during this quarter. The traders would then exploit this share dump.
3. You also don't see some of the SFB bashers screaming about how flash memory was going to kill off the disk drives. In fact, as time goes on the drive companies are becoming solid state storage firms and some of the buyside appear to have finally figured that one out.
4. The short cartel kingpin, SAC, which along with its friends would run the drive stocks up and down like clockwork is on a short chain with the SEC. After Luczo's Barrons comments, which raised the interest of FINRA, some Bank analysts who were writing FUD for the cartel to drive trading volatility, appear to have lost their nerve.
5. The demand for data storage continues to grow at a 20%+ CAGR and annual areal density growth is below 10%. STX and others making noises that there could be a storage shortage in 2016.
6. STX & WDC are returning a high percentage of their free cash flow which combined can be $0.8 BiLLION per or more quarter. Dividends and share buybacks are now sexy with the buyside.
7. The aforementioned areal density growth has slowed down and there has been no major recording technology transitions for the past 5 years, or more, thereby eliminating technology snafus like we saw in the late 1990s creating more stability.
"Apple, Google, Intel, and Adobe Systems have agreed to pay $415 million to 64,000 employees in order to resolve a class action lawsuit alleging they formed an illegal cartel to prevent their workers from leaving for better paying jobs.
Apple's late CEO Steve Jobs is depicted as the conniving ringleader of a scheme to minimize the chances that the top computer programmers and other talented employees would defect to other technology companies"
Isolated incident? Well, consider these points?
1. The Pixar and Lucasfilm units of Disney and Intuit, named in another lawsuit, have tentatively agreed to a $20 million settlement.
2. For years, tech recruitment between even non-competing firms in such cities as Minneapolis/St Paul has been rare.
3. Over the past 20 years, while executive compensation has soared and companies have reported record earnings and cash, middle class wages have gone no where.
4. There is a long history of harassment and stalking of ex-employees by the storage firms under the guise of protecting their proprietary information, i.e. Eltouky, Bonyhard, Goglia, etc.
That's how capitalism "works" in the real world, folks!
As per prior scams, don't be surprised if another I bank short shill comes out in a week or so with a another cautionary report questioning STX.
"Who the heck listens to this guy and reacts enough to drive both STX and WDC share price down by 3.6% in one day?"
Doesn't matter if Shope is right or wrong.
As Luczo noted, his job is to create fear and uncertainty to create maximum contrived volatility in order to drive trades on the Goldman desk.
It's sad that the press quotes people like him and the parasite Chanos without looking at their track records, while totally ignoring the few Analysts who got the drive space right who btw remain bullish on the space.
Another finer point to the scam.
Just prior to the Shope report, STX was testing its 50 DMA. By putting out a report bashing the stock the knee jerk reaction is for traders to sell the stock at the open, i.e. STX fell $1.8 in the first 30 minutes of trading yesterday, which pushed STX well below its 50 DMA which in turn brings in the momentum clowns adding to the selling pressure.
All in a days work for an I bank short shill.
Goldman's Bill Shope was out today with a cautionary note about the IT space. He noted:
"The IT hardware group ended 2014 trading at a 23.6% discount to the S&P 500. While this discount may continue to attract value-oriented investors to the group, our coverage view remains cautious," Shope said in a research note. "In our view, the secular risks of commoditization and disruption that pervade the group justify a persistent discount relative to the market." Shope says aggregate PC demand will be weaker than most investors anticipate. He also says investors are overestimating the scale of a server rebound sparked by Microsoft"
You remember Bill don't you? He remained neutral on both STX & WDC as they went to record highs over the last two years constantly putting out low ball earnings estimates for the drive firms? Must be nice to make the big bucks for missing stocks going to record highs for 2 YEARS, LOL!
Hey Billy-BOY still hung up on PC sales?
Psssssh, what about the server market and SSDs?
Don't enterprise drives sell for 3X to 4X the ASPS than PC drives with 2X to 2.5X the margins? You should Do the math, Billy-Boy. In terms of contribution to margins that means 1 enterprise drive= 6 to 10 PC drives.
OBTW, INTC just reported upside today, $0.74 EPS Vs expectations for $0.66, driven by strong results for their server group, which they estimate will grow 15% in 2015. FYI, both STX & WDC forecasting strong capacity class enterprise drive sales this year & HIGHER Margins.
What about that Billy-BOY?
The screaming NBC #$%$, Santelli was all smiles today. Why? Turns out the Swiss decision to unpeg the franc translates into volatility in the currency markets. FYI, volatility is the mothers milk of all chart monkies.
As they typically do, the chart monkies played scourge and took back some of the gains created by the fund managers trying to chase alpha in the December Santa Claus rally hoping to make up for their poor returns in 2014. Look for the buyside to pull back going into earnings latter this month.
Overall, about 70% of the mutual funds under performed, 85% of the large cap funds couldn't post market returns. The average fund gained 7% versus a 10.4% gain the SP500 and 13.5% gain in the NASDAQ. Must be nice to make the big bucks for under performing. Sad, so sad.
Small caps were up just 3.4% in 2014, but money began rotating back into the small caps in December. Information technology, biotech, health care, airlines, and utilities were top performing groups into 2014. Energy and Telecom were weak sectors, but some funds began 2015 by buying some depressed energy issues, take a look at BBEP.
While final numbers are still not in, some top funds in 2014 with returns over 20% were BIPIX, FBIOX, RYOCX, UOPIX, JAGLX.
I will have more on the top funds for 2014 latter.