Ken -
Sorry to have taken so long to get back to you. You said:
<<my understanding from these numbers is that APM is a
much more efficient operation>>
True. APM had:
1) Higher GMs
2) Lower SG&A Expense %
3) Lower tax rate
All of these have contributed to higher % profits. A good thing.
I'll address each of these individually. All of these are MY OPINION ONLY.
1) Higher GMs
Gross margin is dertermined effectively by ASP(avg selling price) and yield.
Yield is (# good heads)/(# heads produced). This varies with process and
type. A higher yield is ALWAYS the key to increased profits. I watch it closely.
During the last few Qs, APMs GMs have been(%)
DecQ9MarQ9JunQ9SepQ9DecQ9MarQ9JunQ9SepQ97
GM 24.8 29.2 24.2 29.7 38.3 38.4 32.1 26.7
You can see a good deal of variance. Wanna know why APM made $1+/Q in Dec and
Mar Qs? (It was the high GMs. They will either have to increase rev
Significantly or get back to the high GMs to do it again. I don't
See either one happening in the near future.) This GM spread is a result of the
Product mix, competition, market, # units, etc. Rev for the Qs was:
Rev 94.7 86.7 74.0 89.3 121.6 126.3 124.1 122.8
I believe that part of the HUGE increase in rev at the end of 1996 was WDC. In early
1996, WDC pushed for TFI heads with undershoot reduction - I believe this feature
reduces access time(?) RDRT at the time could not provide it and APM got the biz.
I do not know why RDRT got behind, I've heard because they were focusing on MR,
but in any case, APM did a good job and got the rev. RDRT lost a tremendous
amount of money during those Qs... APM did a good job at the time.
What makes me nervous about the current GMs is how quickly they have fallen.
From 38.4% to 26.7% in 2 Qs. This is yield and ASP issues. Look back at their
PRs and they talk about how important it is to improve yields on the newer products.
It is obvious to me that they could not do this, the WDC 1.7GB pgm was cancelled.
During the same time period, RDRTs GMs have gone from 22.1% to 22.4%.
Why are the GMs lower? Is it MR fundamentally? Is it competition? I do not
know. Will the APM GMs fall to around 22% and flatten? My gut says not, because
yields always start low and improve with new products. During the RDRT CC in Sep
they talked of how yields are improving with every MR product(1.3, 1.7, 2.1) So, it's
not necessarily the density that is the problem. Seems the new MR technology
was tough to master for them. In the end, I've seen APM talk about yield problems
and RDRT talk about yield improvements. GMs at APM have been falling.
2) Lower SG&A? They ARE more efficient there. Lower sales cost %.
3) Lower tax rate. Anyone notice they only pay around 2 - 3% taxes. I'd imagine
this is a result of previous losses that they are accting for. Brian or Badger,
you ought to ask Crisman how long that will last. Once this grace period is over
you can count on 15 - 30% off the top of your profits.
<<So if you believe APM is overpriced, are you also shorting RDRT
which is more expensive and less efficient?>> My bet is that APM
*was* more efficient, but that has gone away. The TFI era is over,
now they have to pay the MR Gods for the transition.
Hope this answers your question.
todd
Ken -I've got all of the APM financial junk in an Excel97 spreadsheet. I'f be happy to send it to you so you don't have to collect it yourself. There is alot of other stuff like cash, R&D, misc, etc in it. It also allows you to change GM, rev etc and it will tell you future EPS given those changing parameters. Send me an email at TBowland@aol.com - your addr in not listed. |
