Disk Drive Sector Discussion Forum Message Board

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Technology Stocks : Disk Drive Sector Discussion Forum

WDC 243.29

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Jan 22 3:59 PM EST

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To: Sarmad Y. Hermiz who wrote (7703)	1/6/2000 2:22:00 PM
From: Mark Madden	Read Replies (3) of 9256

Here are my opinions of pricing data we have watched over the quarter verses profitability for the drive companies. The weekly pricing reports give us an indication of over-all disk pricing environments; nothing more. They consist of drive samples from discount distributor pricing lists. These prices vary between distributors and certainly vary more when considering EOM prices and prices from the local computer stores. The manufacturers negotiate prices that may be more favorable to larger orders. One variable in determining profitability is the number of drives sold at what particular price. I have no clue. Another variable in the profitability is the number of drives sold. Larger quantities of drives allow the fixed costs to be distributed on a wider base. Therefore, they become a lower cost to each drive. Although there is a relationship between the demand and pricing and there is a relationship between demand and quantity of drives sold, I can not quantify the relationship with pricing reports. As Z and Stitch discussed the biggest variable in profits this quarter are the costs associated with manufacturing drives. This is a moving target. We have heard of reductions in force at some companies and that unit growth is strong. This indicates more machines assembling drives that have high capital costs but eventually lower production costs. Also increases in areal density are reducing component costs. The execution of these programs in the 4th calendar quarter could make a large difference in profitability between the different companies. The pricing report drive samples are averaged in categories such as "drives less than 11gb". These samples are dominated by drives in the 8gb to 10gb range but this may not be where the sales are. The average price means nothing so it is possible that the change in average price is meaningless because it is influenced by particular drives that are not selling. I believe the pricing reports are only helpful if we look at them over time and use them as comparison to other time periods. Overall, I think we saw price stability last quarter that is better than we have seen for several years. The larger capacity drives over 21gb had larger price drops that are about normal for the industry to maintain profitability. The lower capacity drives did better but started low. This is where the action is because the sales in the lower capacities are much higher. Next quarter could be fantastic. IMHO the cost reductions will be greater next quarter as efficiencies improve and the mix of drives sold improves profit margins. The demand predictions Stitch showed us could keep the prices stable. And, the high growth rate of new drive markets could begin to have effect. I can hardly wait for the conference calls to spur my optimism. Regards, Mark

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