Jefferies Sees NAND Risk for Western Digital (WDC); Cuts PT to $54
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Jefferies lowers its price target on Buy-rated Western Digital (Nasdaq: WDC) from $62 to $54 today, noting NAND risks on the change.
Analyst James Kisner noted the following points:
- Concerned About WDC's Potentially Eroding Competitive Position. Our recent conversations with industry contacts suggest there is significant uncertainty around which NAND vendors will come out on top from a cost/bit perspective as the industry transitions from planar to 3D NAND. Importantly, it's not clear whether WDC and its manufacturing partner, Toshiba, will be able to maintain the cost advantage it enjoyed in planar NAND.
- Also Concerned About Oversupply...Demand Model Suggests Downside Risk. We built a NAND demand model (available to clients on request) driven by end market. From our perspective, it is quite easy to come up with downside scenarios where NAND demand is below the ~40% supply growth we believe industry is likely planning for in CY17. We also have concerns that Intel's expansion into NAND production at its Dalian, China fab and the potential eventual entrance of a new domestic Chinese player creates elevated risks of oversupply; at a minimum, this will likely be an overhang to WDC's valuation.
- Minimal Technology Risk for NAND. On the positive side, our analysis suggests that new "storage class" memories like Intel's 3D XPoint are not likely to pose a significant threat to NAND over the next 5 years.
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