Z,
NOW, would not be a good time to exit the high end for QNTM. The new products (Atlas III/Viking II) are good products and should be competitive from a performance standpoint. Cost, I don't know. What I can tell you is that SEG and IBM will protect their gross margins and both will continue to be profitable in the high end. Believe it or not the last two quarters have been an INDUSTRY problem not just a SEG problem in the high end. During last quarter the TOTAL MARKET for high end drives was down 5%. SEG's losing market share was on top of that. Also, a "little birdie" tells me that QNTM lost as much market share on the high end as SEG (down 3%). Maybe some of those media quality problems were for real. A good rule of thumb for profitability in any portion of the DD market is that it requires 10% market share to accomplish it. In the high end, only SEG and IBM get there. QNTM, WDC, and Fujitsu are knocking on the door. Here's the real danger. Will either SEG or IBM play "WalMart" and try to keep the others from crossing the threshold (i.e. we are on the precipice of a price war)?
On another note, MAX is knocking on the door in the desktop. Seems like they're a comer (boy, I sure don't like the idea of the Koreans getting a foothold, here)
About your questions in particular, first, $35M is a drop in the bucket compared to what it would take to get out of the high end. It sounds like they want to liquidate some leftover inventory from the older products before ramping the next generation. Also, it doesn't make sense to exit the high end, now, when they've got new products ready to ramp. If Atlas III/Viking II do not succeed, THEN they might want to get out.
About the "potential profitability" of the high end, well...., the apple's still there. When it's good it's VERY good; when it's bad it's TERRIBLE. About the investment required to be successful in the high end, well...., if you want to play you got to pay. Just look at how much money Hyundai has sunk into MAX and they just now look like they might be able to see the top of the abyss. The remainder of your comments also address QNTM's commitment and funding of the high end. Again, the comment is that they have to determine their own pain level. The problem is that the shareholders might hit their pain level first.
If QNTM gets out, that will open the door wide for Fujitsu, the only other company with the resources to compete (and the product technology). WDC is living on good will only at this point. Their products do not have the competitive edge.
All of the above is just my opinion, so take it how you will.
Regards, |
