I'm back in time to catch the conference call.
You wrote:Must admit, if I were Paul I'd seriously consider leaving the cell phone behind. Especially next week; too much angst for the back country!
I got back a day early; there is still too much snow in the high country above 10,000 feet. Many of the lakes still iced in. Still my wife caught a 4+ pound Golden trout. Cell phones still don't work where we go.
So what do I find when I return? The ECM sector on fire, and SFLX in the dumps.
I appreciate your digging the info from SEG, but this makes it even harder for me to understand the analysts' estimates. The 7% loss in high end HDD market share to WDC etc. means that SEG's production volume only dropped about 7/60 = 11.7% from what it would have been. Since SEG is about 20% of SFLX revenues, the long term "steady-state" implication of this is only about 0.117 x 20% = 2.3% drop in SFLX's sales. This doesn't account for the low ball earning estimates we've been hearing.
It seems to me that we have the "beer game syndrome" at play here. This is the classic MIT business inventory management simulation called "The Beer Game". If you can get a copy of Peter Senge's best selling book "The Fifth Discipline", read the chapter on the beer game. Manager teams who took part in this game, virtually all overordered a beer in short supply, and caused an inventory "bubble" in the supply chain. So later, everyone was stuck with high inventories.
The only rationale I can see for the low ball earnings estimates, is that SEG won't take delivery of this excess inventory until the inventory levels are worked down. So the SEG rep assertion that inventories in the channel have been worked down now, is very bullish long term, like the 3rd quarter. Furthermore, SFLX assemblies were one of the limiting factors in building more drives, so the inventories of these assemblies were probably non-existent prior to the June inventory problem. So my estimate of the 2% shortfall in SFLX revenue should be conservative.
The most important factor in projecting a rebound in revenues from last Q, is the resumption of normal color scanner assembly sales to HP, one of their biggest customers. From what I understand, this has happened.
Seems to me that the low ball analyst estimates are too pessimistic. I think we will see a rebound Monday and Tuesday, although predicting short term moves like that is almost impossible, and really not important to the long term investor. The market stock price seems to be predicting "low-ball" earnings.
Well, we see Monday. For next Q, I don't believe that SEG is going to give up market share like that without a fight. I expect a price realignment, with some temporary market share recovery for SEG.
Paul |
