Nice summary, Lawrence. A few additional notes:
DLT has over 50% market share, so gains there will be slowing to the growth rate of the market over time. But most of the DLT sales are in US; QNTM is no longer component constrained, so they will start focussing on international opportunities to expand the business. A lot of new business is coming from NT servers/networks; seems DLT is the backup option of choice when people buy NT. They said they are working on the next generation DLT drive now, going to 100gig. Approximate time of arrival in CYQ1 1998. Were asked about Sony's projected 100gig product, but said that they had heard nothing about it; as far as they knew, no one else would beat them to 100 gig, although they knew everyone was working on it. Claimed that DLT has architectural advantages over competition--1/2" tape better than 8mm, which is what Sony uses, for getting higher densities. Also the same management team that heads DLT will also head Terastor products to come. They didn't say much about TeraStor, and surprisingly to me, weren't asked much about it. I guess it is still regarded as vaporware.
The high end is in "turmoil". I slightly disagree with LK's characterization of this turmoil as simply a matter of SEG producing "too much, then lowered prices". MB (great initials for a CEO of a drive company, huh? Guess he should change his name to "Gene" now so he can be GB, though; in a couple of years to Tom, to be TB) said that the high end is undergoing structural change; Seagate used to dominate the market, but because it is such an attractive market, it is attracting more new competitors (duh!), each wanting a piece of the pie, and customers wanting to second and third source. QNTM walked away from business rather than compete on price; therefore they didn't meet their fixed costs as they had projected. Others, though, did the same, including SEG. They are all trying to find a proper balance between supply and demand, not easy with a changing structure, and not clear when the balance will be attained. Also, people are not only working down inventory from spring, but are also not ordering more drives because of change to JIT, especially since they are more certain that they can get adequate supply from multiple sources. High end market will grow faster than desktop; MB believes that the Atlas 3 and Viking 2 drives will be what people want, to ship in March quarter.
International business was down, due entirely to problems in Asia. He cited the currency turmoil there as a cause. Europe was actually up from last quarter, and higher than plan.
Biggest DLT customers: CPQ, DEC, HWP, IBM. Biggest drive customers: DEC, ACER, GTW, DELL, HWP, CPQ, AAPL (not necessarily in that order).
DLT spinoff issue: Someone sounding a lot like Z said pointblank that if DLT were an independent company, and valued at 30x earnings, then its capitalization would be as high or higher than QNTMs current capitalization, what would QNTM do to "unlock" that value in the marketplace, if anything? MB said that that was up to the "you" (the investment community), not them. They are breaking out the numbers for DLT, and spending a lot of time talking about it; if the analysts want to revalue the stock, then do it, we're not stopping you (not literally, but to all intents and purposes). Pretty funny stuff, I thought. They were, in a word, impressive. Not to repeat anyone or anything.
My overall take: Despite the huge run that this stock has had, it is still not only a keeper, but a buy.
Sam |
