Disk Drive Sector Discussion Forum Message Board

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Technology Stocks : Disk Drive Sector Discussion Forum

WDC 160.04

+5.2%

3:59 PM EST

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To: Mark Oliver who started this subject	12/9/2002 9:30:44 PM
From: Gus	of 9256

....and a favorable pricing environment. Sweet words from the Maxtor preannouncement. 'Tis the peak season for the global PC industry (135M-140M units a year now), but this is exactly the type of pricing signals that the other vendors should pick up more quickly if they want to have a regular oligopoly rent control party every year coming out of this bear market.<g> Frankly, an upgraded industry PSR range of even a measly 0.75x to 1.50x (from sub-zero range) would mean 3-baggers, 4-baggers or even more for most of the switch-hitting and contact-hitting folks here and on the Yahoo boards who have been following this soap opera for years.<G> Fujitsu is less of a wild card than WDC because it makes most of its drive money supporting its status as the dominant enterprise computing vendor in Japan where IT generally costs up to 2x more than anywhere else in the world. Because of its mainframe experience, Fujitsu is also the credible enterprise vendor that the array vendors need to keep Seagate honest. But WDC -- the hottest drive vendor of the 1994-1997 industry boom -- has also shown some signs of rational behavior by pulling out of the enterprise drive market (10%-15% of unit shipments) at about the same time as Fujitsu's decision to retreat from the desktop market (70+% of unit shipments). That leaves the dynamic duo of IBM and Hitachi. Upon further review it appears that the astonishingly rapid deterioration of IBM's crucial enterprise drive business may have led IBM and Hitachi to surreptitiously modify its sale agreement such that the disk drive industry may be more exposed to IBM's future dumping practices than previously thought during this multi-year transition period when the JV is still trying to introduce critical scale into its manufacturing operations Right now I think Hitachi's capacity is good enough to supply its own requrements as a server-disk vendor in Japan and as a disk array-only vendor outside of Japan, but it's clearly not good enough to supply IBM's own internal disk requirements in the desktop and enterprise. The industry rule of thumb is that a drive manufacturing operation has to reach 10% market share to break-even. Hitachi had 3% overall share and IBM had 11% overall share when the deal was announced, but I think the combined number is probably in the 6%-8% range or even less, again due to the rapid deterioration of IBM's enterprise drive market. Very vulnerable. Now say this as quick as you can: Hitachi is the designated patsy. Hitachi is the designated patsy. Hitachi is the designated patsy. See? It even rhymes.<g>

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