Rob Black's Tech Stock Report

| About: Yahoo! Inc. (YHOO)

Yahoo! (NASDAQ:YHOO) announced a reorganization of its structure and senior management. This announcement follows recent calls for change, internally highlighted by the publication of “The Peanut Butter Manifesto” last month which suggested that the company lacked a cohesive vision and decisiveness, as well as pressure externally as shareholders have been disappointed with recent performance.

Yahoo! will be segmented into three groups: Audience, Advertiser & Publisher and Technology in the hopes to increase accountability and faster decision making. Yahoo! has been criticized lately as allowing their competition to pass them by as their competitors develop more effective search technologies and swoop up rapidly growing niche websites. Isolating the technology function into a separate structure appears to be an attempt to address some of these issues.

Management changes include the departure of COO Dan Rosensweig and Media Group Head Lloyd Braun. Sue Decker is stepping down as CFO and becoming COO of the Advertiser & Publisher Group. A search for a new CFO is underway. Terry Semel remains CEO.

Analysts see these changes as a positive for YHOO shares. While moving around the pieces doesn’t necessarily increase the value of the pie, the fact that the company is addressing the issue and making a change will be well viewed . Furthermore, management changes address the concern of unrest among several senior executives which weighed on the stock price.

There has been concern regarding both the supply and demand sides of the NAND equation for 2007, with consensus believing that there will be considerable oversupply in 2007. These concerns are overblown and we expect the market to be only slightly oversupplied next year, while the stock is pricing in considerable oversupply for 2007. On the supply side, recent bit growth guidance from Samsung and Hynix for 2007 has been rational, as they are allocating a greater proportion of their new capacity additions towards DRAM given optimistic demand expectations for DRAM next year.

Samsung and Hynix guided for NAND bit growth of 120% and 140-150% YoY respectively for 2007. Even assuming that both Samsung and Hynix will eventually end up with their bit growth being 10-20% above current guidance, this represents a deceleration from their 2006 bit growth of 165% and 250% respectively. Samsung and Hynix combined represent 63% of global NAND supply market currently, so their rational bit growth expectation is encouraging. On the demand side, analysts expect 2007 to be driven by continued penetration into handsets, analysts expect bit growth to exceed 300% next year, and growth in demand from emerging applications such as PMPs, PCs, and automotive.

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