Very interesting article on PC sector (including disk drive sector) posted by Paul Reuben.
Whether you agree with the views of Roxanne Googin (a technology analyst) or not, it's definitely worthwhile reading the article and trying to determine whether her views have any merit. If her views do have merit, even if there are errors in her views, it means the valuation of PC stocks (and their component suppliers) could experience a long-term decline---not just a short-term correction.
-LK
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
techstocks.com
Subject: QUANTUM
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To: Gottfried Mauersberger (4592 )
From: Paul Reuben
Sunday, Nov 9 1997 11:45AM EST
Reply #4618 of 4631
In case anyone hasn't seen this one:
cbs.marketwatch.com.
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Western Digital won't be alone in its misery
Analyst says PC industry is in 'first inning' of downturn
Sat Nov 08 16:38:44 1997
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NEW YORK (CBS.MW) -- Western Digital Corp. shocked investors
when it warned that earnings for the current quarter would come in about
60 percent below analysts' expectations.
The Irvine, Calif.-based disk drive maker expects to net 20 to 30 cents a
share for the quarter, well below Wall Street's consensus forecast of 84
cents. Western Digital, which cited pricing pressures and not reduced
demand for its troubles, also warned that next quarter will also not meet
analysts' projections.
Independent analyst Roxanne Googin told CBS MarketWatch that the
explosive sales growth of sub-$1,000 personal computers is behind
Western Digital's problem, and will likely result in earnings shortfalls for a
number of other PC players. "You haven't seen anything yet," Googin
warned.
Here are excerpts from the interview, led by reporter David Wilkerson:
CBS.MW: What accounted for Western Digital's second-quarter
shortfall? How much were they hurt when Seagate flooded the distribution
channel, as Quantum pointed out when it released numbers?
Googin: I think you're being too event-driven. The thing that's
happening is the $1,000 PC. And the thing that's driving that is that you
get 30 percent price performance increase in chips, and frankly 60
percent per year in disk drives, but there's no features being added to the
PC. And if you think about it, there's no new Microsoft operating system,
all of the new software developers are on the 'Net now. So what's
happening really is that the PC does not have enough new innovations on
it to support continued price performance in the components. So that's the
secular problem that you're faced with, and the most direct evidence of it
is the talk about the $1,000 PC, and how popular it's becoming. Other
evidence would include price pressure all the way from Intel all the way on
down.
So what's happening in the drives is that tactically, you can get now more
than 2.1 gigabytes per platter on one platter, but people don't want more
than that. 2.1 is fine. And the drive guys always made money selling
multi-platter drives, because people wanted more capacity than could be
effectively delivered. That's no longer the case. For the first time in the
history of the PC business, the feature growth is lagging price performance
growth. So what you're seeing is that everybody is taking price cuts. So
what you're seeing is Intel is having its analyst meeting today -- Intel hasn't
made its quarter since the first quarter ...
CBS.MW: Intel apparently had a fairly positive conference call. They
seemed more or less upbeat about the fourth quarter --
Googin: Yeah, based on lowered expectations. I mean, fourth quarter
(now) is nothing like what people were talking about in the beginning of
the year. So what's happening is that fourth quarter is anemic at best, with
terrible price declines, and it's affecting every vendor across the board.
That's what's affecting Western Digital.
And on top of that, they've been slow to migrate over to magneto-resistive
[heads]. Their head supplier, Read-Rite, is not giving them good-quality
yields on the high-end components that they need to make the transition.
Quantum has bought the effective worldwide capacity (all of which is
coming out of Japan at this point from TDK and Yamaha), and so on top
of the secular decline, they have not executed as well as Quantum on the
MR tranisition. Quantum is therefore gaining share.
CBS.MW: Would you advise buying on WDC's weakness here?
Googin: I think that the whole PC industry is in secular decline, similar
to what the mini-computers went through last decade, that we're in the
first inning. I think that you haven't seen anything yet.
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