Yogi;
<<On topic, Maxtor, HDD, and (to a lesser degree) Rdrt and Htch look very interesting to me for a long term investment. Does anyone have a bear case for them-- other than historical performance.>>
I am with you on MXTR and HDD. I am also with you on the general sentiment that the recent correction may present buying opps and would love to hear your thoughts in other arenas.
DD Components still do not appeal however. With reference to RDRT my view is that they are locked in a battle with Alps for the number two independent position. SAE appears to be the new gorilla in terms of indy head supply. Think about that for a second. These guys are fighting (and some say losing) to win the number two position in a declining (units) market. Furthermore, in order to achieve their rather dubious goal, they must jump through technical hoops galore. Finally, on a more near term basis they have just announced they are shutting down their Manila plant and consolidating stack operations into Thailand. They will save $ 15m per quarter but I wonder what the write-off will be.
With regard to Hutch I was in and out of it for a while a few months ago. I backed out after learning how quickly a small competitor in Thailand, who was literally on the ropes financially, managed to reorganize, convert debt to equity, repatriate lost business with Seagate on a flex circuit suspension that SEG clearly favors over the more expensive TSA from HTCH, and start shipping big volumes. In addition, while they were doing all that they also managed to bring to market a wireless product that qualified at HDD as a second source to HTCH's TSA. They did it in a partnership with Nitto Denko, and deliver the product to HDD at a much better price then HTCH by my reckoning. Now, if you go back and review the last few annual reports from HTCH you could conservatively estimate that HTCH has around $600m-$800m sunk cost in the TSA. The question I ask myself is how could this little second tier supplier in Thailand accomplish a 2nd supplier position, while they were going through financial re-org, in such a short time, and while they simultaneously ramped up Seagates FSA (flex suspension assy). I also ask myself how long can SEG use the FSA until they are forced to go to a TSA type of suspension. I do not know the answer but I do know that Seagate has ramped up a second supplier of the flex circuits (3M - the other is Innovex. I also know that Innovex in partnership with a contract manufacturer that is close to Seagate is puuting up a huge plant in Chang-Mai, Thailand. You do not build plants to make a product that is only going to last a few quarters. So my guess is that Seagate has figured out how to extend the FSA technology. I further guess that SEG has worked out details on a read/write amplifier that suits the FSA well. All this conjecture aside there is still the issue of declining component count that will assuredly continue to affect HTCH like all the other component suppliers.
Conclusion: thumbs up on MXTR and HDD
Thumbs down on HTCH and RDRT.
JMHO,
Stitch |
