{ "docId": "019dd923-622c-750b-8b9a-931d15d7e8ac", "docSlug": "c71f39d7ed80", "documentTitle": "SMART Global Holdings, Inc. (SGH)", "authorId": "60_Wolfpack_Research", "authorName": "Wolfpack Research", "documentKindSlug": "research-note", "documentKindLabel": "Research note", "sourceTypeSlug": "short_seller", "sourceTypeLabel": "Short seller", "presentationDate": "2019-09-25 00:00:00", "orientation": "portrait", "aspectRatio": 0.77272725, "pageNumber": 8, "pageCount": 35, "prevPage": 7, "nextPage": 9, "slideType": "villain_critique", "function": "diagnose_problem", "density": "overcrowded", "nDataPoints": 6, "notes": "The slide uses a narrative case study of Dell to illustrate the failure of the business model under new regulatory constraints.", "elementsJson": [ "paragraph", "bullet_list" ], "metadataConfidence": 0.95, "imagePath": null, "slideHref": "/slides/019dd923-622c-750b-8b9a-931d15d7e8ac/8", "deckHref": "/decks/019dd923-622c-750b-8b9a-931d15d7e8ac", "deckJsonHref": "/decks/019dd923-622c-750b-8b9a-931d15d7e8ac.json", "deckAnchorHref": "/decks/019dd923-622c-750b-8b9a-931d15d7e8ac#slide-8", "components": [ { "bbox": null, "kind": "callout", "text": "This is a lose/lose situation for SMART Brazil and SGH.", "attrs": null, "subkind": null, "toolName": "Visual emphasis", "toolSlug": "visual-emphasis", "confidence": null, "componentId": "019dd953-78b4-70ad-b390-f5f19e95db3c", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.07, "w": 0.18, "x": 0.77, "y": 0.03 }, "kind": "image", "text": "WOLFPACK RESEARCH", "attrs": null, "subkind": "logo", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "977038db-f398-4594-bc43-195239be7346", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.12, "w": 0.86, "x": 0.07, "y": 0.71 }, "kind": "list", "text": "Give up on qualifying for the PPB (Brazil is a tiny piece of Dell's business, anyway); or Force SMART to invest a significant sum of money to expand its capabilities in Brazil and carry out more complicated manufacturing processes at much lower margins than in the past. A revision to the new PPB that doesn't offend WTO principles. However, this would still force SMART Brazil to sell its memory at greatly reduced prices, crushing its margins.", "attrs": null, "subkind": "bullet", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "ea5b5bd5-de39-4277-b27a-b68ad668c5f5", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.05, "w": 0.86, "x": 0.07, "y": 0.5 }, "kind": "paragraph", "text": "At this point, in this fantasy world where Dell disrupts their global supply chain to greatly expand its dependence on SMART Brazil, Dell is still 18 points short of qualifying for the PPB and it has exhausted SMART Brazil's current capabilities.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "306cde92-cec4-45e0-8645-2718f990065b", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.06, "w": 0.86, "x": 0.07, "y": 0.11 }, "kind": "paragraph", "text": "OEMs need to accumulate 40 points to qualify for the PPB, and according to our research SMART Brazil will not allow its OEMs to qualify. In other words, SGH's assembly/packaging operation can no longer qualify its OEM customers for the PPB benefits on its own.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "735c8054-4177-4d63-89ec-0251c4a01691", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.06, "w": 0.86, "x": 0.07, "y": 0.57 }, "kind": "paragraph", "text": "How does Dell go about earning those other 18 points? Perhaps SMART offers to make a massive capital investment to expand its capabilities so it can assemble control boards and integrate them with the batteries for Dell's notebooks. This would earn Dell 9 more points – still 9 more to go.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "8c275859-855f-4be5-b7ec-ea45da3e1cfb", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.05, "w": 0.86, "x": 0.07, "y": 0.35 }, "kind": "paragraph", "text": "So, Dell could have SMART Brazil complete the final integration of those ICs into Dell's notebook computers... .... this additional step would only earn Dell 5 more points, bringing its total to 21.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "a66509d8-dfc1-408f-bede-3d1834f0f881", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.04, "w": 0.86, "x": 0.07, "y": 0.43 }, "kind": "paragraph", "text": "Dell could further have SMART Brazil perform tests on those notebooks... .... this earns Dell only 1 additional point, bringing its total to 22.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "a771dbfc-64c0-4fd2-b717-f80db0ad9486", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.07, "w": 0.86, "x": 0.07, "y": 0.18 }, "kind": "paragraph", "text": "To understand why the new PPB guidelines are going to be so devastating to SMART Brazil, it helps to consider it from the perspective of SGH's OEM customers. Recall our example above: under the old PPB, Dell qualified for the PPB benefits by outsourcing 50% of the assembly of one component of the notebook computers it sold in Brazil.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "c5d92933-854d-4c57-807f-673d2342d0b8", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.06, "w": 0.86, "x": 0.07, "y": 0.26 }, "kind": "paragraph", "text": "Under the new PPB, this would earn Dell exactly zero of the 40 points it needs to qualify for the benefits. Dell must now outsource 100% of the assembly of the ICs it uses in the notebook computers it sells in Brazil.... .... and even this only earns Dell 16 of the 40 points it needs.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "ce874ad5-91f3-408f-99b6-402db6c67bdb", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.03, "w": 0.86, "x": 0.07, "y": 0.86 }, "kind": "title", "text": "This is a lose/lose situation for SMART Brazil and SGH.", "attrs": null, "subkind": "action-title", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "375df821-edfb-45e0-8d14-c6fac8acacfc", "frameworkName": null, "frameworkSlug": null } ], "metrics": [], "tools": [], "frameworks": [], "arcBeats": [], "loops": [ { "to": 10, "from": 4, "name": "Logic Chain", "slug": "01-logic-chain", "bestFor": "Skeptical audiences, controversial recommendations, rigorous analysis", "matchId": "add01b28-9920-467a-97eb-3d8958ba375e", "evidence": "The document's logical and detailed analysis of SGH's strategy and financial performance.", "position": 0, "objective": "To expose the contradictions in SGH's strategy and financial performance", "structure": "Premise 1 (Accepted truth) -> Premise 2 (Observed fact) -> Therefore... (Inevitable conclusion)", "confidence": 0.8, "description": "Build an airtight chain of logic where each premise leads inevitably to the conclusion" } ], "imagePathAlt": null, "thumbSrc": null, "thumbSrcAlt": null, "locked": true }