Disk Drive Sector Discussion Forum Message Board

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Technology Stocks : Disk Drive Sector Discussion Forum

WDC 156.49

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10:47 AM EST

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To: Mark Oliver who wrote (7637)	12/27/1999 7:41:00 PM
From: Stitch	Read Replies (1) of 9256

Mark, <<Do you think Seagate has more or less days inventory as a result of being vertically integrated?>> I think SEG has fewer days of inventory at the moment then they did last qtr (on avg) but do not have a good feel for response to a reversal. In other words: What happens if the faucet gets closed by the OEMs? The word on the street is that SEG is petal-to-the-metal on U8 and a few other designs. Several home leaves were cancelled through the holidays and a voluntary holiday deferral program was put in place. But the Morgan upgrade (Morgan has become "smart" and is now sending these out in PDF format, so no more cut n paste copying) By the way, I was mistaken when I reported a target of $55. In reading the report more carefully I see it is in fact $57. The following is verbatim from their upgrade (as to valuation): This target assumes that the disk drive company is worth at least $10 conservatively or 0.30X L12M revenue (2x the competition due to the better mix and profits), to 15X C2000E of $0.77 (a normal disk drive valuation for a company making money, note that Seagate typically traded at 20X earnings). We then need to add in Seagate?s remaining software business (roughly $115MM revenue run rate per year today) and a smallish tape drive business. These together add several dollars and get us to a base Seagate valuation of about $17 (which we think is conservative). We are then getting the rest of Seagate?s valuation plus upside by taking the public value of Veritas shares (85mm), and the other investments (5MM shares of SanDisk, 5MM shares of Gadzooks, and others) and taxing their value at 35% (though it may be possible to lower this rate) to get another $40 in the stock (or $11B in market cap). Note that Seagate owns 35% of not yet public Dragon Systems. The report goes on to say that Q1,Y2K should be seasonally slow and that Seagate holders may have to weather some buffeting. It further states that the slow down in cap-ex in the industry should start having an impact on DD availability in Q3-Q4 of Y2K (an interesting observation but no explanation for this). Best, Stitch

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