Conference call high(low) lights from my notes:
A very short call with just the facts and the usual cautious optimism by management about the "future." (Defined as somewhere out there 4-6-8-? qtrs.) It sounded like even Wayne is getting a bit tired of hearing himself say it.
TSA now 72% of sales, 54% of units
Quarter started slow and ended slow. Currently running 4.9 M/wk TSA and 4.2 M/wk Conv (units).
ASPs actually went up a little on TSA product, they see ASPs staying fairly stable on TSA going forward.
They are expecting $100-105M revenue next Q.
Losing some market share on conventional, but holding position or even gaining with wireless. They think total market share is 50-54%, with majority of losses coming from Fijitsu's captive capacity. There was a question about Inovex flex, but they really don't seem very concerned about them. Suspension technology requirements are getting more sophisticated with every program and they think that plays into their hands (bit of slap at Inovex).
Cause of trouble: (need I say?)
They are now planning for ongoing 100% yr/yr increase in areal density, although they feel that rate has to slow in a year or two (slow to what rate he didn't' say. Has to slow a lot to help them, I should think)
They are planning for suspensions per desktop drive going from current 2.2 to 1.7 by year end, then trending slowly down after that (only good news is can't go less than 1!) Enterprise going from current 8 to 4 (don't recall over what time frame, but pretty soon.)
Big layoffs and asset writedowns announced to keep trying to rationalize the business. Headcount now down 31%, hope to save 111M annualized. (I imagine they will be cutting more and taking more charges before the year is out). They are doing whatever they can to hold the balance sheet together while they hunker down and wait for market/technology dynamics to become favorable again.
I don't think they said a lot about new customers or programs, except got a couple more TSA things going, lots of "interest" in aTSA/cTSA, and of course, (drum roll) they're "Working With Segate!" LOL!
My conclusions? I'll check back with them in 6 months or so, but I think they're in a classic catch 22. The need to shrink the business NOW taking lots of charges. But what happens when rate of component count decrease slows next year, and maybe areal density improvements slow along with it? Demand for storage isn't going away soon so they could get caught without enough capacity two years from now and start another cycle of aggressive capital exp. to catch up, only to be overtaken by another technology shift. Maybe the guys at hutch are smart enough to manage this, but they haven't demonstrated an ability to navigate rapidly changing technology landscape very well over the last couple of years. |
