Signs of intelligent life in the disk drive industry.
Read-Rite
** RDRT's entrance into the Optical Filter business looks promising. RDRT has a dedicated team of people looking into the possibility of working on dense wave division multiplexing (DWDM) for the fiber optic component market. We
believe RDRT will outline its business strategy for this market in the next few months and we foresee product prototypes being available in 1H:C01
Western Digital
Recent development for Connex’s NAS offering.
- Connex is working with Japanese distributor NAGASE to introduce the N3000 NAS appliance into Japan. NAGASE will begin selling the N3000 system throughout Japan in August.
Additionally, Soltec Japan plans to provide customer service support through its 76 service offices in Japan.
- Connex upgrades capacity on its N3000 NAS appliances. Capacity of the new N3000 will increase to 216 GB by leveraging the latest generation Ultra SCSI drive technology. Current N3000 users can easily upgrade their units by swapping the previous generation drives with the
higher capacity disk drives.
- WD’s Connex subsidiary shipped approximately 100 systems during the quarter. Connex business is tracking about one quarter behind previous revenue projections. As such, we believe Connex will deliver quarterly revenues of around $7-10 million by CYE00 with target gross margins between 35-40%. The Connex mid-range NAS appliance competes most directly Hewlett Packard’s SureStore and is positioned above entry-level products like Quantum’s Snap Server and Cobalt’s NAS RaQ and below enterprise class systems like Network Appliance’s NetApp Filer and EMC’s Celerra.
Update on SageTree, WD’s data warehousing software venture.
- During the quarter, SageTree launched its first software product, SageQuest. The software is designed to enhance manufacturing companies’ supply chain management intelligence. SageQuest is a packaged application that is faster, simpler and more cost-effective to install compared to built-from-scratch supply chain systems.
- NCR Corporation invests $10 million in SageTree. During the quarter, NCR and SageTree announced a strategic partnership with NCR investing $10 million.
- SageTree, WD’s data warehousing software venture, delivered modest revenue and gross profit in the June quarter. Going forward, management expects quarterly revenues in the $5-10 million range in C2001. SageTree is projected to deliver gross margins of approximately 45-50%.
Cash decline $18 million in the quarter. Cash decreased by $18 million (to $184 from $202 million)in the quarter with cash burn from operations of $30 million related to higher spending on the new ventures. Accounts receivable decreased $28 million to $184 million and DSOs were essentially
declined to 29 days (from 31 days in CQ1). WD sold 4.0 million shares for $18 million from its S-3 (shelf offering); Fiscal YTD the company has sold 24.5 million shares for proceeds of approximately $112 million. WD intends to replace its credit facility and is currently entertaining proposals from a number of lending groups.
We are lowering our F2001 estimate to a loss of $0.44 from a loss of $0.16. We are lowering our estimates to reflect a return to more aggressive desktop pricing, due to inventory build which is a function of (1) component shortages and (2) the transition to 20GB per disk capacity point.
Additionally, Western Digital is investing more aggressively in R&D related to its new ventures. We continue to believe that WD’s investment in its new ventures — Connex and SageTree—will begin to deliver material revenue and gross margin upside in F2001. We maintain our BUY rating.
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Quantum
Revenues from the Quantum’s ATL products and Snap Server appliances reached record levels during the qtr, and hit the $100M run-rate for the first time in company history. Increased revenues were driven by record unit shipments of
Snap products and ATL enterprise tape automation systems. The SSG business continues to benefit from the explosive growth in the NAS and SAN storage markets. The company reported that Snap 4000 unit ships have doubled since
the February 2000 timeframe, and that shipments of the newer rack-mount Snap 4000 appliance grew to 50% of Snap revenues. Overall Snap revenues increased 50% QOQ to $10MM, driven by more large volume orders, as well as increasing
sales of higher capacity products. Management expects to exit the year with a quarterly run rate of $25MM in Snap.
It is now estimated that Quantum holds 85% market share in the workgroup segment of the NAS market, and has indicated plans to expand product reach outside the US (initially to Europe and Asia Pac) in order to drive increased brand awareness. The Snap business remains unprofitable as the company continues to remain in an investment mode.
Quantum also reviewed its new strategic partnership with Dell Computer’s storage division. The companies plan to collaborate on development of future NAS products in order to drive increased category and brand awareness. The
collaboration will allow both companies to expand NAS products to a broader set of customers. We expect the first products from the collaboration will be announced in the near future, and will likely be targeted towards the low-end
NAS market. We believe the opportunity to work with Dell will greatly enhance Quantum’s brand awareness, and should serve to accelerate Storage Systems growth.
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Maxtor
Maxtor increases its investment in its NAS products. Management reiterated its focus on the fast growing NAS market by announcing plans to invest heavily in R&D. We expect R&D spending to increase by approximately 5% sequentially for the next few quarters, which will detract from MXTR’s bottom line growth. Guidance for the this new product group remains limited, however we expect revenue from this product group to expand significantly in 2H:C00 and could reach about $65 million in C2001. Additionally the prospects of higher system gross margins (30% or greater) offer some relief to commodity pricing and margins tied to the desktop disk drive industry.
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Seagate
Mum's the word at Seagate, what did you expect? <g>
Seriously, of all the disk drive makers, the dominant enterprise drive vendor potentially has the most potent storage networking assets in LTO/tape (backup), Cobalt/Seagate (NAS/caching), Xiotech (SAN) and SEG Software (business intelligence). Xiotech, for example, had about $70 million in sales before it was acquired by SEG late last year and sales should continue to accelerate in line with the rest of the storage networking industry. |
