Delaney explains, “We see NAND margin risk from: 1) 2017 oversupply: We expect NAND capex to rise by 45-50% this year and create oversupply in 2017. 2) 3D yield risk: WD is behind Samsung in 3D NAND and trying to ramp quickly, which we believe creates yield risk. 3) Royalty: The Samsung royalty under the current agreement goes through 8/14/16 and we estimate is 8-9% of WD’s EBIT. WD will need to renegotiate this, and we expect at a lower rate. 4) China: Chinese companies are attempting to enter the NAND market. We also expect long term declines in HDD sales.”
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