Sarmad,
Thanks for your thoughts, appreciated as always.
Personally, I will be amazed if WDC actually successfully pulls off the RDRT acquisition. That certainly doesn't mean that they can't do it. In their favor, RDRT has been miserably managed for years now. They have made good money when they managed to make density transitions, but I'm not sure that they ever made more than one transition in a row. It seems to me that they did best when they leapfrogged one transition to get into a higher density before other head companies. This may well have been a reflection of their management, and perhaps WDC can manage things better. But even STX with its longstanding commitment to a heads business and its far greater volume of drives fairly consistently missed transition points, however many patents they managed to get or density "records" they may have publicized (though IBM and RDRT always claimed more of those). It isn't a easy business to be in, especially when it isn't your sole focus.
I also wonder how WDC will manage to get the savings you project if they aren't in the merchant market, as they have fewer drives than STX to use heads in; hence, they will have fewer efficiencies of scale, but will still have to carry the substantial R&D expenses that the heads business demands to successfully pull it off. Perhaps the dismal experience that QNTM had with their heads business colors my expectations. If everything goes right for them, they could perhaps achieve substantial savings, but the phrase "If everything goes right for them" covers a lot a territory, especially this business.
I actually see MXO benefiting if WDC does manage to succeed keeping the heads business alive. It will mean that they (MXO) will be the sole large assembler of drives as a prime customer for the remaining indies. It should put them in a better negotiating position. The more heads out there and the more sources of heads there is, the better for them; if ALPS and TDK want to continue to stay in the business, they better land a good MXO contract. At this point in the drive business, profitability for the Big Three will depend as much or more on (a) whether anyone else actually enters the business (e.g., Samsung), (b) how satisfied WDC, MXO and STX are with their market share in any given segment, and (c) as always, their individual execution of transition points and production and inventory control. I won't mention the obvious factors of where the PC/computer/storage businesses are in their cycles at any given time or the speed with which consumer applications ramp up. Those factors affect them all, not any one company.
For the benefit of those who don't wade through the Yahoo board (I only occasionally do, and am pretty selective in what I read, there is so much noise there), arbpro's post comes in the context of a long running debate (for years now) about which of the two would be the better investment. The answer of "neither" has been only occasionally put forth, though it was the right answer until the recent run. |
