Well.....

Was it worth the wait? For the record, if you read my last article on Sandisk and compare to what they said in the conference call and what the analysts are saying now and see how spot on I was. Comments??

Sandisk Stealing Market Share

NPD group has just released their market share data for the MP3 market for the month of March. Continuing its recent trend, Apple has been ceding ground to rivals in the MP3 business as it focuses on its launch of the iphone and their new operating system, Leopard. Since Apple launched the diminutive shuffle way back in september of '06, they have stalled the release of newer ipods to enter the cell phone market and work on the release of the vaunted OS Leopard. As a result of this stall, Sandisk has taken market share from Apple with its release of 4 new and improved MP3 players. The kicker is that Sandisk has picked different price points and age groups to market their new players.
The "Shaker" is geared for Kids and priced so that they could go out and buy it with their allowance money.
The "Express" is for people on the go who don't need a lot of storage, but want a screen with extra features.
The "Connect" is for those who want the most feature filled MP3 player on the market. The WiFi (the real kind) allows you to download songs as you listen. And then there is the "View", a PMP to watch movies, tv shows, music videos etc. priced very conservatively.


All of the these devices cater to a market that Apple has yet to exploit and as long as Apple continues to push off the introduction of their new ipods (particularly the new Video ipod) look for Sandisk to continue to grab market share.

Sandisk + Microsoft

Sandisk has finally entered into an agreement with Microsoft to package (as of yet undisclosed) software onto Sandisk hardware. This is very similar to the U3 that has been out there for a while with other software vendors. Under the terms of the agreement, Sandisk will provide the hardware technology (TrustedFlashtm) and Microsoft the software. The product will then be licensed to third party hardware vendors who will pay a licensing fee to both Sandisk and Microsoft. This deal underscores Sandisk's position as an IP leader and uses that position to rake in the L&R fees.

NAND Shortage

All indicators are pointing to a shortage of NAND flash memory for the second half of the year. With new devices coming to market that require more capacity manufacturers are going to struggle to meet the heavy demand. There are no new fabs scheduled to come online anytime soon which means the only new capacity that can come about is from transforming Dram to NAND. The probability of that happening, in the near term at least, isn't great though. Most manufacturers are waiting for a rebound in Dram chips as a result of a wide spread adoption of Microsoft Vista. What is interesting to note however is that there are as much as ten new fabrication facilities coming online either in late '07 or '08, and this doesn't include those fabs which are transforming their fabs from 200mm to 300mm. This makes me cautious about the Dram market in general. Right now prices are falling because of little demand, manufacturers loaded up prior to Vista and have yet to clear those chips from inventory. Once those chips clear and the reordering process starts you can expect demand to pick up and once that happens there will be a corresponding price increase. The question is how long will the rally last? With all the new capacity coming to market will demand really be enough to soak up the excess supply? It seems like what happened in the NAND market is going to repeat itself in the Dram market with all the excess supply. Additionally I don't see demand drivers for Dram like I see from NAND, which makes it all the more riskier.

A short term play on Dram might be your only bet, especially at this point with limited visibility. NAND on the other hand is looking at solid growth later this year and through the SSD era.

AT&T subsidies for Apple iphone?

Heres the latest update from AppleInsider:

Wireless carrier AT&T is looking to use next month's launch of iPhone as an important branding opportunity, but now appears unlikely to offer subsidies on the Apple handset, according to comments made during a recent AT&T investor gathering.

"There was a major focus on the launch of the iPhone, expected in late June (based on Apple’s latest comments)," John Hodulik, an analyst with UBS, wrote in a report following the financial meeting. "While the company would not answer the vast majority of our questions, we were able to infer a couple of new data points."

First off, said Hodulik, AT&T indicated that it plans to use the iPhone launch "as a branding event" and that it will also increase its advertising dollars around the product to cement the "AT&T Mobility" name in the market. The No. 2 U.S. wireless carrier added that it expects Apple to market the product aggressively through its own avenues, as well.

"We expect the wireless market to see increased competitive pressure with the
launch of the iPhone," wrote Hodulik. "Meanwhile, the company will increase advertising and handset subsidies on non-Apple phones to take back postpaid gross add share lost in [the first quarter].

At the same time, however, the UBS analyst said comments made by AT&T management led him to believe the carrier will not subsidize the cost of Apple handsets, as has been widely rumored over past few months.

"In fact, AT&T may generate a small margin on sales of the [iPhone] in its stores," he wrote.

Hodulik add that, "Management would make no comments [sic] on how the phone is activated in its own or Apple owned stores, suggesting that this may be done somewhat differently versus typical handset purchases."

Overall, the analyst said he walked away from the meeting believing that AT&T's revenue share with Apple could be a more meaningful portion of monthly average revenue per user than previously thought. He explained that this is possible given the "significantly better economics" AT&T should realize from iPhone subscribers, given the lower "churn" and cost of adding each user to its network with advertising and branding help from Apple.

"The main concern was the impact of a generous revenue share could have if a large number of iPhone subscribers were existing AT&T Mobility customers," wrote Hodulik. "While giving no details, management suggested this had been contemplated, leading us to believe that the revenue share changes based on whether the customer is a new or upgraded subscriber or that the economics are adjusted based on the actual numbers of each."

Lastly, the UBS analyst said, AT&T expects the Apple phone to help drive traffic into its stores where it will increasingly sell wireline products along side its wireless services. /end

While it appears from here that AT&T will not officially offer rebates for the iphone it remains to be seen if loopholes will be used to circumvent their official policy. A friend of mine called Cingular at the end of his contract and told them he would not be renewing it for the coming year. As an incentive to keep him a customer, they offered him a $300 credit for any phone of his choosing. He obviously asked if this would apply to the upcoming iphone and the rep responded that it would. So at least for existing customers there may be some loophole which would allow for a subsidized phone. This makes sense for an existing customer, it remains to be seen for any new subscribers.

What the hell

Why not just keep on posting, this is as good a place as any to post my thoughts and hear how ridiculous or genius they sound.

Anyway, regarding a Sandisk Music phone, I believe it is a strong possibility looking at Sandisks evolving business model. It's shift towards a consumer electronics company has opened up a new source of revenue as well as a method of soaking up some supply. If there is a company that is able to do it, it would be Sandisk. Their cost structure is second to none and their IP and partnerships enable them to leverage their technology better than anyone in the business. A phone however would be a tougher item to sell. The market is already flooded with so called "music phones" and consumers cant really pick out a phone that stands out from the others. Samsung's 'upstage' phone is one of them. While it has two screens, everything else about it sucks. Battery life, appearance, quality etc. If Sandisk can come out with a phone that has a distinct design to it, meaning its like an iphone (sorry to say that, but Apple again has done an amazing job at making one device with three distinct functions, unlike the others, which is a phone with an MP3 player attached), if they can do that they may have a chance. This isnt like the MP3 business where the flash memory plays a major role on how much the device will cost. A cell phone has a lot of variables in terms of cost that Sandisk cannot control. The partnership with Quimonda that was just announced however, does signal that Sandisk is looking to get into new markets.
Good things come to people who wait.

Rumor Debunked

This from Gizmodo

Rumor Smashed: iphone Will NOT Come With 1.5 Years of Free Service

This morning, a reputable investment site made mention that AT&T plans to give away 18 months of service for free with every iPhone. It's not important who said this cough*thestreet.com*cough, but a Cingular rep has told Gizmodo that the rumors are not true:

"The report is nonsense. We've always said the only way you can get the iPhone is with a Cingular rate plan."

We're all for salivating over rumors when labeled as fantasy, but this one is so...

unbelievable that it doesn't even get us half-hard. OK, take the world's most anticipated phone, sell it exclusively. Sounds like a money machine. So, why give away the minutes and data for 18 months, leaving 6 months of paid service on the 2-year contract? Bunk...unless that 50% margin on the totally unsubsidized phone is going into Cingular's pockets. That could rewrite the way phones are sold...UGH, no. Must resist these rumors.

Cingular to give free cell phone service with iphone?

This from Appleinsider quoting from Jim Cramer:

Cramer: Cingular to give away 18 months of service with iPhone

By AppleInsider Staff

Published: 12:00 PM ESTThursday's hot iPhone rumor comes compliments of CNBC analyst Jim Cramer, who suggests Cingular/ATT will sidestep subsidization of the Apple handset by giving away lengthy service contracts.

"In its call, the company made it very clear that it's going to use Apple's iPhone to get customers from Verizon Wireless by giving away its service for a year and a half to those customers who buy the phone," Cramer explained in his blog posting at TheStreet.com.

The CNBC "Mad Money" host believes the strategy will help the wireless carrier court a flurry of new subscribers while maintaining requests from Apple not to discount the cost of the $499 and $599 mobile devices./ End

I don't know where he got this from, but its an interesting strategy. Should this prove to be true I would assume they would charge the full data fee, which is pretty expensive. For 18 months of free service the iphone is essentially free, this is not including hidden charges which I'm sure there are.

Steve Jobs CNBC Interview