The basic truth is there is no room to grow unless you take market share and that can only happen by selling more units with a lower ASP and hopefully there remains some profit through technical and manufacturing excellence, or death/merger of competitors.
Unlike PC's, and many other tech segments, HDD is made up of 6 or 7 significant players controlling over 90% of the available market. There is no white box market to divide. They have no opportunity to add value through marketing. Their customers treat them as if they deserve no profit, and they accept it willingly as their competition stands constantly ready to replace. They are doomed to this endless cycle. I wonder if it will ever have any moment of improvement as the term cycle suggests?
So, now we have announcements from Quantum, Maxtor, WDC, SEG and perhaps IBM if you consider layoffs a sign of trouble. Does Fujitsu remain a strong player or are they simply falling on their swords quietly? We often talk of Korea dropping out and Connor dropping in. There seems to be no solution for these companies to have a successful business model.
Can they find profitable niches? Can Quantum be the video player? Can IBM and Fujitsu keep the portable drives to themselves? Can anyone hold the high end? Can SEG come up with a design and vertical solution to profit in the low end?
Is there a good reason why we spend so much energy on these companies? Actually, yes. There is certainly a fluctuating trading range that has been profitable. These are not buy and hold investments.
So, where are we in the cycle now? Certainly to me there doesn't seem to be any company that screams buy me, more sell me. I hold some RDRT and Hutch. I will probably get a good lesson on RDRT as they certainly must warn or disappoint with all this trouble. But, I have a tradition of loosing money on RDRT that is hard to break.
Hutchinson has been confusing. They warn and at the same time announce they are bringing back laid off workers and adding manufacturing capacity. The near term looks good. The stock has traded up from their warning announcement. Is this clever market manipulation by Fortun, or have they got something up their sleeve? Have they finally got a contract with SEG for TSA? Is there a short term BTO or channel shrink that caused their product to loose demand?
So, we have a little bone to chew with video recorders sporting big hard drives. Is it really now enough to move a stock price? One can hardly by any HDD stock on predictions even 4 months away. I love the idea of this technology. Anything that could give me commercial free TV is worth gold, but will it work? Anyway, in 1 or 2 years we'll get 90% of our entertainment from the Internet anyway. I certainly don't want to be buying a video store.
And Quantum warns. Is this their chance to right off tons of waste before the split? The market is looking for a deal getting the tape business cheap? I'm tempted to buy some puts just to get the drop on HDD when the stock splits. Or, is this a really tough quarter and there's no winner this time?
Seems like we always had some company that looked like it was doing better at the group's expense. Not this time, unless it's Fujitsu. So, with all the players hurting, what's to make anyone think next quarter will be better? Yes, I assume we've already discounted this quarter and look ahead to next quarter.
Pretty pathetic state of affairs. Not surprising the thread is so quiet.
Regards,
Mark |
