QNTM conference call report:
Firstly, management was VERY open, VERY optimistic, and VERY respectful and indulgent of the analysts. Look for reiterated buys. They didn't beg for multiple expansion, but they might as well have. I love these guys. You won't see this company renting the corporate jet from the CEO's other company...
- HUGE losses from heads; >$10 mln for their 49% share. Still 15-20% of internal requirements.
- HUGE losses from enterprise; $20 mln post-tax, $27 mln pre-tax. 9% of revenue. Prices are below QNTM's 20% gross margin model. Basically, competitive market caused by battle to be second-source (lower prices) mixed with SEG overproduction (inventory glut). Well is poisoned and won't be improved until March quarter. Industry is acting responsibly and adjusting production. QNTM will not compete on price to steal temporary market share. May take action to speed up ramp of Viking II and Atlas III. High channel inventory.
- Met 8% operating model for desktop; revenue $1 bln. ASP $171, up slightly. 6.3 mln units shipped, 4 mln Fireball ST, 1.5 mln Bigfoot CY. 15% <2GB, 40% 2.1GB, 45% >2.5GB. Expects continued migration upward. Thinks they have 50% market share for >4GB drives. Were NOT affected by low-end pricing pressure because their drives don't go that low. Nifty, huh? Normal channel inventory. 20 inventory turns. Quotes IDC projection of 4Q sequential growth rate as 22%. Projects flat margins for 4Q.
- Beat 15-25% operating model for DLT; $339 mln sales, +27% sequential; sequential growth will slow next quarter (difficult comparison), but will make 100% for fiscal year. ~1/3 of units shipped: DLT2000, 4000, and 7000.
New products
- Fireball SE highly leveraged. Should be fastest ramp ever. Crossover in March quarter. Ramp constrained not by production, but by OEM qualification (why the heck does this take so long anyway?). Will ship to 1 or more OEMs next month.
- New Bigfoot to be announced next week. Already in production and qualified at 1 OEM.
It's a damn shame SEG is so poorly managed. They single-handedly caused the low-end problem and are at least complicit in the high-end problem. It had been widely speculated that competitors are eating SEG's high-end lunch. This no longer seems to be the case. What really happened was that they shipped too much, then lowered prices. Everybody loses. |
