Vanni,
Wish I knew. I don't know which drives are most affected. If the severest pressures are mainly in the <2 gig drives, QNTM will be fine. If the pressures are severe across the board, then obviously they will be adversely affected. Their high end business is obviously suffering, as they themselves admitted in the CC, as is the head business.
One wild card in this is how the Far East currency devaluations are going to affect things--most drives are made in the countries that have been most affected by this (although I'm not sure if Singapore has devalued or by how much--anyone know this?). Manufacturing costs will be going down, so while margins will be compressed this quarter as they clear out inventory, they should spring back next quarter--at least somewhat--as that higher cost inventory is cleared out.
Then the other question is, just how much over-capacity is there, and exactly where is the over-capacity? Is the overcapacity caused by the existing big 4 players (counting IBM here), or is it because of the smaller players expanding and trying to get volume production up to become bigger players (e.g., Maxtor, Fujitsu, et al)? If the former, then the problem should be fairly short lived, IMO. If the latter, then the pain will have to be deeper and longer, as someone will have to say "uncle" and either cut back or go bankrupt. The big four players can last a long time if they to, although their stockholders won't be a happy crew if this does last longer than, say, 3 months or so, especially since it is coming at peak season. I guess if you are going to attempt to grab market share, that is the time to try it.
At least QNTM has DLT humming. That will help enormously, they won't go into the red, but they won't knock out those wonderful numbers that we all were looking for as recently as a couple of months ago.
One more thing: if this is a repeat of past cycles, then drive companies will start posting losses. I may be being an ostrich here, but I still don't think it is a repeat. The business is still going to be cyclical, but the down cycles should be shorter and less drastic, with the up cycles stronger and longer. I don't look for another DRAM situation. At least I hope not. If so, I will be in for a lot of pain.
Thrilling investing,
Sam |
