Joe,
When the currency crisis in Southeast Asia began in July, SEG's assessment was that certain purchases would be deferred and that there would be an increased demand for lower capacity drives as the PC OEMs reduce the features of their PC offerings as a way of maintaining their razor-thin margins.
At the end of the June quarter, SEG was 70/30 TFI-MR and the plan was to convert to 70/30 MR-TFI by the March 98 quarter. Because SEG has not released its September quarter balance sheet and limited the access to the conference call, it is difficult to determine where they are in the transition to MR.
My guess, and this is only a guess, is that SEG may try to extend the useful life of its TFI heads to adjust to the situation in certain parts of the world. SEG's yields on these TFI heads are already good and the yields should improve the longer they manufacture these increasing SEG's $20-40 cost advantage per disk drive. I believe, however, they can do this with OR without KM. In 1996, SEG accounted for over 50% of the global production of TFI heads. Although it does not have the most advanced TFI heads (APM does), I believe it is still the largest and most efficient producer of TFI heads.
Since IBM is on the record as saying that they want to replace SEG as the market leader, I think it is a positive sign that IBM is interested in KM not only in the MR heads that will be used by Samsung, but also in the use of KM with perpendicular recording, which some people believe may be necessary to go beyond 10 Gbits/in2. I refer you to Chris Elsass' use of tootpicks to explain the difference between longitudinal (up to 10 Gbits/in2) and perpendicular (10 Gbits/in2 and beyond) recording.
As we later found out, one of the things that lessened the marketability of KM+TFI was the fact that Ampex had not yet developed a road map for KM+MR then. As Hal has pointed out, nobody wants to introduce a technology that is only good for a few cycles. I think we may have a road map for longitudinal (TFI and MR) and perpendicular (GMR/CMR)recording. That's a positive sign, IMO. Make of that what you will in your own calculations of the risks and rewards of this stock. As always, time to market is key. The ooomph and sizzle in the KM story may be gone already so this stock may only move when money starts coming in.
Gus
P.S. This part is not addressed at you, Joe, but at the minority of this board who may think that there are predictions in this post: this is just an opinion that will change when better data comes out. |
