Kevin, Robert,
The senior management of these companies already know that price wars are better off avoided--in general. Somtimes, like the Kosovo/Yugoslavia bombings, they are inescapable, though. A few years back, SEG, QNTM and WDC dominated the drive business, with IBM sort of hanging in there with most of their capacity going to their own captive needs. Both we investors (and most analysts) and the companies themselves (the "Big Three", as they were called) became complacent, and stopped pushing areal densities quickly enough. Hyundai/Maxtor and Fujitsu saw their opening, they quietly plotted and planned and attacked the Big Three at the same time, in the fall of 97. This is when the "price wars"--the new incarnation of them, at any rate--began. They have been compounded by IBM becoming more aggressive and Samsung attempting to become a player. Never forget that someone always benefits (or thinks that they will benefit) from these episodes. Too much capacity breeds them. Those who have strong balance sheets or who are sufficiently desperate to cover overhead and gain or maintain share begin them until their goal is satisfied. Right now is a great time for those with strong balance sheets to begin a war, during a typically slack season. The best time for those who want to pick up market share to begin something would be in Sept, at the beginning of the peak season.
This whole thing should't make anyone who thinks that their company is a long-term survivor that unhappy, given the circumstance that 7 companies apparently have ambitions to be one of the eventual Big Three (or Four? no more than that, I would guess] in the drive business in the next millenium. The airlines went for years without anyone making money either. Eventually they got it more or less right, even while still be cyclical, and they made some serious money. So will this sector, at some point. All my opinion only, obviously. |
