Sarmad,
I can see that it is now time to shift the recent WDC discussion over from the FD trading thread, because WDC has now radically altered their business plan with the acquisition of Readrite. In any case, maybe the ensuing discussion can reignite participation in this thread, which has been dormant since January.
I have just listened to the quarterly cc again. Previously I had only heard the Q&A. With an additional 1,000 shares purchased today, bringing my total to 2,500 purchased since yesterday, I now have some incentive to try to understand what is going on, though not as much incentive as you have. <g>
From what I can gather, the strategic rationale for the acquisition was driven by a combination of offensive and defensive reasons:
Had they not purchased RDRT, it would have fallen into the hands of the Hitachi-Alps-Seagate JV. bayarea.com
As WDC competes against both Seagate and Hitachi, and Alps is one of the other two merchant suppliers of head assemblies besides Readrite (the other is SAE, a sub of TDK), an acquisition by the JV could have had severe consequences for WDC by: (1) constricting the merchant supply of GMR heads to a duopoly consisting of this JV and SAE, which could have had adverse pricing and supply consequences, or at least a shift in bargaining power and (2) giving a key advantage to competitor Seagate, which already is thought to possess some advantage in their possession of perpendicular technology. seagate.com
Note that RDRT has counter-claimed to have an advantage over Seagate's technology: enterprisestorageforum.com
So there is an offsetting offensive advantage that this merger can bring to Seagate. They potentially acquire important technology that can help them better compete against Seagate and provide the basis for future transitions beyond 80 GB. RDRT was not sufficiently capitalized to have continued spending $80 million cap ex per year needed to ensure their longterm viability. In light of this spending, the acquisition cost looks quite reasonable.
On the cc, WDC stated that it does not want to disturb its existing merchant supply arrangements for heads and certain other components, and I can see why. At 4Q02, SAE lead with 58% of OEM market share for 80 GB compared to ALPS with 34% and RDRT with only 8%. trendfocus.com
Even at full ramp, it is uncertain that a captive RDRT supply can ensure full supply of their needs. During the cc, WDC said they were aiming to supply 50% of their needs internally in the short run, I believe. I'm sure part of their reticence during the cc is that they don't want to say anything that will come back to bite them, not only for competitive reasons but also because analysts have a tendency to try to pin them down and then later ask them to explain the delta.
Enough for now.
Sam |
