Z;
<<Stitch, Do you buy Julian Munson's view that PC sales down 9% and DD strength carryover from last qtr. Seems that price pressures would have already resurfaced.
Actually Z, I do buy her scenario. Don't be too dismayed at the 9% decline in PC sales. To put it in perspective we had almost twice that decline last year and it is a normal seasonal effect IMO. The point she made was that this was more of a decline then anticipated as earlier signals were that we would enter Q1 with strong PC demand pull from the unfettering of corporate buying that had taken a holiday to watch Y2K come and go. She also notes that steam picked up towards the end of the quarter which I would concur with based on anecdotal data from here. Further, she expects this year to see double digit growth in PCs, so all in all it is pretty good news. Disk drive demand passed from Q4 to Q1 without a hitch because of strong consumer demand and restocking orders. At one point late in Q4 there was even some whispers about allocation for some desktop models. However, I expect mid Q2 to bring less frenetic order dynamics and we will likely see some resumption of price pressures on the desktop. Still, I expect it to be less severe then recent history due to healthy demand from Windows 2000. The numbers for set top boxes et al are too insignificant to mean anything yet.
Two key points: we are still in a state of overcapacity, and it may not lessen with folks like Fujitsu expanding capacity in Thailand and the Philippines and Conner ramping up in China now. Western Digital's transfer to Kuala Lumpur of all manufacturing ops is fait accompli and they are up to full measure. Seagate has continued to reduce employee head count but did not close the Wuxi plant as planned after intervention from the Chinese government with new incentives altered their economics there. The second point is that we are still in a declining component per drive count. Consequently pressure will continue to mount on RDRT, HMTT, and KMAG for those of you dabbling in that beleaguered space.
I guess all in all I am cautionary. The war is not over, and by all accounts, it is spilling into the upstream space (NAS). Cost and cash (read "war chest") is still the name of the game, and will be especially the case as appliance storage starts to make a dent in the numbers. Wait till you ee the price pressure in that market. You can live well on 10% gross margins if the numbers are big enough though, yes?
Best,
Stitch |
