Disk Drive Sector Discussion Forum Message Board

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Technology Stocks : Disk Drive Sector Discussion Forum

WDC 164.80

+8.3%

1:48 PM EST

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To: Z Analyzer who wrote (1387)	10/31/1997 1:13:00 PM
From: Gus	Read Replies (1) of 9256

The thing is the top tier PC vendors, which are growing several times faster than the PC growth rate, are ruthlessly pitting the drive vendors against each other to get the best possible prices. Additionally, IBM is launching a major offensive against SEG next year. To review, IBM spent $1.6 billion in 1996 and the IBM board gave the disk drive unit another $1 billion last June. I do not know if IBM still plans to double 1996 year-end capacity by 1999, but it is clear that IBM is serious. Check out the way it has lined up NEC to be its second manufacturing source as a way to extend the useful lives of its trailing edge MR heads and disk drives as it ratchets up its lead in the density race by introducing higher density MR heads at a faster pace to gain a significant cost advantage over SEG. This affects WDC because, if I remember correctly, IBM bought $500+ million of disk drives from it last fiscal year. One can assume that over time this biz will go to NEC. This also affects QNTM because, like most contract manufacturing agreements, there are repricing mechanisms that get triggered when certain volume or rate of return targets are not met. I believe one was triggered when QNTM's lost market share in the high-end which led to the losses in MKQC in the September quarter since QNTM's high-end biz is the exclusive customer of MKQC. If I am not mistaken, QNTM's desktop biz would have triggered another repricing mechanism if QNTM had not reversed the 3 quarter trend of declining desktop volume by posting growth in the September quarter. There are real advantages AND disadvantages to the fabless model. Until the realignment of the high-end and the desktop becomes clearer, I think one should consider limiting one's storage exposure to the RAID vendors since they represent a pure exposure to the corporate upgrade cycle. The December and March quarters are traditionally strong quarters for these vendors especially this year which may be more back-ended than most. For some reason, these vendors dip along with the disk drive supply chain (read: nice entry points) but come back more strongly. Might I suggest EMC or MTIC (30-35% DLT biz).

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