Seagate Technology - Fundamentals Message Board

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Technology Stocks : Seagate Technology - Fundamentals

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To: Ausdauer who wrote (1538)	3/30/2000 3:52:00 PM
From: Gus	Read Replies (1) of 1989

That's an understatement. Fundamentally, SEG's core drive business was on the cusp of an unprecedented breakaway cycle. Going into the worst downturn in disk drive history with the sheer magnitude of IBM's move on the industry it invented becoming more visible, SEG made the conscious decision in 1997 to single-handedly start building out the supply line for the fluid-bearing motors that was viewed as necessary for SEG to continue its groundbreaking work that started with the 7200 rpm and the 10000 rpm drives. The recently announced Seagate/Minebea cross-licensing agreement was a culmination of those efforts and a signal to those following SEG all these years that SEG was poised to reap the substantial rewards of those investments by being the single-source (read: stable and high margins) for those drives highly-prized by RAID designers. At around $1000 a drive and with no competition in sight for at least a year since presumably SEG was going to absorb all of Minebea's precision motor production, SEG was poised to make at least 40% gross margins on a drive program that could easily go up to 2-3 million drives a year. 2M/3M x $1000 x 40% = $800M/$1.2B in potential gross margin contribution from that drive program alone without taking into consideration the added margins from NAS/SAN!!!!!!! The low-end and the middle-market NAS/SAN can loosely be defined as the 2 to 60 drive RAID market. Per Dataquest, the NAS space ALONE is expected to grow from 201,000 units this year to 1 million units in 2003. That should give you an idea of explosive demand waiting for drives with superior I/Os and the hidden value in SEG's drive operations. When you start adding in the cost efficiencies that will be made possible by SEG's aggressive areal density programs across all its other disk drive programs from the low-end to the high-end then you can understand better why some of us believe that SEG had a legitimate shot at establishing $1-2 billion as its peak earnings power during this upswing and to use that, along with those other assets, as the platform for arguing that the proper capitalization trading range for one of the premier storage companies should properly be between $20-40 billion due to the quality of its assets and earnings power. And they want to pay a measly $1.2 billion for all that????

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