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Technology Stocks : Read-Rite
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To: Daniel Kahn who wrote (4821)11/9/1999 3:44:00 PM
From: Mark Madden  Read Replies (2) of 5058
 
"What can we watch for clues that it is turning up?"

I watch the pricing of drives through distributors. When the supply of drives exceeds the demand, the prices drop. Over the past couple years the average price for disk drives dropped about 5% per month. In the past month the prices only dropped about 1%. The longer this stability is maintained, the more margins will improve as sales shift to newer higher margined drives.

RDRT has also been hurt by lower quantities of heads in each drive. I think this is bottoming out as the current low capacity drives are down to 1 platter. IMO drives will begin to use more platters as higher capacity is needed for greater amounts of data. I believe increased bandwidth in communications will create more data in the form of more pictures and sound. Also the drives needed in entertainment for PVR (Personal Video Recorder) type equipment will be much larger.

I have trouble envisioning how consolidation may occur but something will give. My guess is Western Digital will narrow their product line and specialize in certain products. With RDRT getting Quantum business and Seagate business, some head manufacturing somewhere will be hurting by both low prices and low quantities. Consolidation may only be seen as shifting market share as some head manufacturing can not keep up with advancing technology. If demand takes a sharp jump, companies will not have the resources to expand manufacturing fast enough. This would cause shortages and higher prices. The future will be interesting.

Disk drive stock prices have increased after downturns before like the recent increases in semi stock prices . I would like to see it happen again.

Regards,
Mark
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