The 1997 JTS Annual Meeting minutes (unofficial, of course)
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Copyright (c) 1997 - Chet Sehgal. All rights reserved.
Permission granted to freely copy and distribute the text
provided it is copied in its entirity, including the
disclaimer at the end, without any editing.
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OK, here's what happened. All the five items in the agenda were
settled in the first five minutes, going the way the management
had recommended them on the proxy forms. By the way, if anyone
cares, 77 percent of the total proxy votes were sent in,
constituting the quorum.
And then this: Immediately after the conclusion of regular items of
business Tom Mitchell declared the meeting closed. And he announced
that any questions shareholders had would be answered individually. This is not what everyone had hoped for, including of course, me.
I had driven down to the annual meeting, like most others, hoping
to find some answers and justifications for continuing to hold
whatever was left of the rapidly dwindling value of the JTS portion
in my portfolio.
As a couple of people left the room and others threatened to follow
suit, I made the first move, although someone else would have too
soon enough. I simply told Tom that this was not acceptable and
that there had to be a formal Q&A session. The response was not
exactly shareholder friendly.
Tom and other JTS representatives tried to come up with every
possible excuse for not wanting to do that. They had to leave
soon, they'd answer the questions individually, the formal meeting
was over anyway, and so on.
Ya, right! Come on, Tom, if you had to leave soon, wouldn't it
make more sense to answer a question once rather than repeating
the same answer individually? Is this how meetings are held at
Seagate and Connor Peripherals too? I don't think so. Anyway, to
make the long story short, after resisting some more and after
many other folks joined me in my protests, they finally agreed
to hold a formal Q&A session.
OK, now for the Q&A session. The folks answering questions were
Tom Mitchell, Joseph Prezioso and Andre (didn't get his last name
- he was the legal guy, carefully listening in and declaring
certain questions were off limits)
I did not have a tape recorder, I just took quick notes. I
cannot vouch for the accuracy of all the information below: it
is possible that some of the comments may have been misinterpreted
by me.
NOTE: In the text which follows, I have adopted the following
convention: answers from any of the JTS folks are labeled "JTS". However, most of the questions were answered by Tom Mitchell.
Audience questions are labeled "AUD".
AUD> What new products are on the horizon?
JTS> 3 inch drives - 1 Gig, 1.4 Gig, 1.6 Gig and 2 Gig. In
development and evaluation is the 1.2 Gig drive for the notebook.
3.5 inch line - 1.7 Gig, 2.1 Gig, 2.5 Gig, 3.2 Gig, also starting
shipping the 4.3 Gig drive.
The performance of all the drives is equal to or greater than the
competition.
By the end of year JTS will be coming out with 3.4 Gig drive in
3.5 inch format.
AUD> What's happening with the Nordic drive? We build connectors for
the drive and we've been put on hold for a week.
JTS> Nordic drive is being shipped to 5 OEMs including Compaq. In
light of the weak disk drive market, we have been forced to
reduce production at least for the time being.
AUD> Are you contemplating bankruptcy?
JTS> No, we have no intention of filing for bankruptcy.
AUD> What volume do you need to break even?
JTS> We cannot go into the details.
AUD> What sales volume do you need to break even?
JTS> Again, we cannot disclose this information. However, our
production is in India, where the hourly wage is less
than 20c/hour. And the staff in India comprising of
Graduates with MS and PhDs make less than $5000 a year.
AUD> What is your financial situation?
JTS> We are managing our cash position, protecting our cash position.
We have adequate credit line we can tap into if needed. The
specifics however will be disclosed in the 10Q the end of August.
AUD> You have mentioned in a recent press release that there has been
a large increase in the trading volume. At the same time the
stock price has gone down substantially. What is the reason
for it?
JTS> We are in regular contact with AMEX. They have handed the
matter over to their regulatory group.
We have been experiencing a slowdown in sales, probably more
acutely than the competition. But we are working towards
building a strong OEM channel to mitigate this in future.
AUD> What percentage of the disk drive market do you control?
JTS> Quoting from a recent report published, JTS has 1.2 percent
market share overall, 4 percent in IDE desktop drive market.
AUD> Have insiders sold any stock?
JTS> Lip-Bu Tan sold 47,000 shares. Virginia Walker sold some of her
shares.
TOM> I haven't sold any of my shares. I look at it as a very good
investment.
AUD> Do you plan to float additional shares? This will only result
in diluting existing shares.
JTS> There are no specific plans to offer additional shares. But they
will be used if there is any need, for example, to acquire
another company. But, again, there are no specific plans at
the moment.
AUD> How long can JTS survive without additional funding?
JTS> Again, bankruptcy is not an option. We continue to pursue
additional financing options.
AUD> Rumor has it you are having problems with one of the financing
sources.
JTS> Not true.
JTS continues to have new relationships with OEMs.
Trigen (sp?) in Korea, for 3 inch notebook drives concluded
an evaluation and we have started shipments to them of 2 Gig
drives. We have started shipping to Reema (sp?) of Taiwan, a
subcontractor for Compaq in Taiwan. Two third of all notebooks
are manufactured in Taiwan.
AUD> Who are your toughest competitors?
JTS> IBM and Toshiba constitute 70 percent of the market share of
2-1/2 inch drive. IBM manufactures in Thailand, Toshiba in
Philippines and Japan.
AUD> Compaq is doing great. What significance does this have on JTS?
JTS> Notebook sales overall have been bit of a disappointment in the
market as of now. Sales have slowed down. But this is just the
current trend which could change very fast.
AUD> What are you doing about replacing the CFO?
JTS> Joseph Prezioso is acting as a CFO on a temporary basis. JTS will
be announcing shortly that he will be assuming the position of
CFO on a permanent basis.
AUD> Is this a formal announcement?
JTS> Yes.
AUD> Congratulations, Mr. Prezioso.
AUD> Tom, how do you run a company without knowing the backlog?
TOM> Disk drive sales this year will be about 132 million. This
is an increase from 110 million last year, and about 80 million
the year before. We have a very strong relationship with Compaq;
we ship disks to them every month. We already have a strong
distribution channel. In Europe, our distributor Carma (Sp?)
does 800 million dollars of business every year. Another
distributor, CHS, almost doubles this number. In Latin
America, Future Tek, controls 70 percent of the Latin
American market. In US, we deal with the three largest
distributors and just signed a deal with another major
distributor. Our prime goal is to continue building OEM
relationships.
AUD> What are the advantages of manufacturing in India?
JTS> Our operating expenses are much lower. Manufacturing in Thailand,
Japan is considerably more expensive.
AUD> Do you see any disadvantages of manufacturing in India?
JTS> None at all. The quality of the product coming out is excellent.
AUD> What is the involvement with Time Warner?
JTS> There is no involvement with Time Warner. They are just a
shareholder.
AUD> What percent of shares are held by insiders?
JTS> About 30%
AUD> There were initially so many disk drive manufactures, now there
are just seven.
TOM> We believe we have a stronger design team, compared to Seagate
and Connor Peripherals. Believe me, I've been at these companies.
Companies have gone out of business because they did not have any
clue about the business.
The designers in India are extremely competent. They are mostly
expatriates. They have degrees from UK, US and other places and
then decided to go back to India. They are very good.
AUD> What about the pending lawsuits against JTS? Any change in
status?
JTS> There is no change in status than that mentioned in the 10K.
AUD> Are there any plans of reducing the work force?
JTS> Haven't specifically given thought to it. In US, there are less
than 200 employees, including 150 very talented engineers. In
India, there are less than 8000 employees, and the expense is
not high.
AUD> Have you asked the Indian Government for any incentives for
manufacturing there?
JTS> We have taken advantage of every incentive the government has
offered.
This is a season of soft disk drive market. The laptop market is
closely related to the desktop market. Laptop and desktop
sales are expected to increase in future.
AUD> Are there any additional OEMs deals in the works?
JTS> There is a major OEM timing out our month long qualification this
week. Another one finished the qualification last week. We expect
orders soon. These are the first steps of increasing our OEM
base.
AUD> What percentage of plant capacity are you operating at?
JTS> Less than 50 percent.
AUD> Have you been making adequate press releases to make investors
informed of your activities?
JTS> Press releases have been adequate. We haven't misled anyone.
AUD> Are there any plans of building OEM relationships with other
disk drive companies?
JTS> We are investigating. We haven't ruled out anything.
AUD> Some competitors already have 5 Gig drives. JTS will come
out with the 5 Gig drives only by the end of the year. Aren't we
falling behind?
JTS> This is not a sweet spot in the market right now. Our main goal
is to build an OEM base, get orders and then ramp up production.
AUD> Are there any Atari engineers left?
JTS> 2, possibly
AUD> Any products planned from this front?
JTS> No, we are a disk drive company.
AUD> Why did Virginia Walker resign?
JTS> Virginia came from a bio background and wanted to try out the
disk drive industry. She decided that this was not the industry
she wanted to be in after all.
AUD> About the options convertible to stock at 85% of the value: there
has been talk on the internet that folks might be converting
and selling causing further dilution of stock. Could this be
causing the stock decline?
JTS> No idea.
AUD> Is there a limit on how much stock can be issued as a result
of exercise of such options?
JTS> No, there is no limit. Our commitment is to have enough shares
available for conversion. Of course, there is a 5% cap on the
number of shares anyone can own of a company.
We hope that most of the people would hope for better than this
15 percent cushion.
AUD> We would like to know why people are selling their shares. Were
there any insider selling restrictions in effect which have
been lifted?
JTS> No, Insiders have always had a window to sell every quarter. The
window opens after each quarterly news release and remains open
one month before the quarter is over.
AUD> Any poison pill plan in effect? Could competitors be accumulating
shares?
JTS> Anyone crossing the 5 percent cap would have to register. We
haven't seen this.
AUD> When do you expect to be profitable?
JTS> We possibly couldn't answer this accurately. Business conditions
can change dramatically. We did make such a statement in the
past but that was more to give an idea to an investor on the
direction the company was going in. It was a forward looking
statement which did not come through.
AUD> Any predictions about the stock price?
JTS> If the disk drive market improves, the stock price will go up.
This is a great opportunity for investors.
AUD> Are you comfortable with the Montgomery Security earning
estimates?
JTS> No comments.
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DISCLAIMER: I am only reporting the account of the JTS annual
shareholder meeting. Meeting minutes are unofficial in as much
that the account is not verbatim. It is possible some of the
statements may have been altered in their interpretation by me
albeit unintentionally. I further state that I do not represent
JTS Corp or any other company in any way. My interest is purely
as a shareholder. Finally, these are solely my views and are not
shared by my employer. If all this is not enough, all other standard
disclaimers apply :-) |
