Barron's - 11/17/97 - page 67
NO STOCKS HAVE BEEN HARDER HIT lately than those of the disk-drive makers, and it has nothing to do with Asia.
Jim Porter, who tracks the data-storage industry at Disk/Trend, a Mountain View, California-based research firm, notes that Seagate Technology has been hurt by a sharp increase in competition in the market for high-capacity drives used with network servers. According to Porter, Seagate's share of that market has shriveled to about half the market from 80%, losing business to Fujitsu, Quantum, IBM and Western Digital.
Western, meanwhile, has seen profitability suffer as it catches up to the rest of the drive industry and introduces drives using state-of-the-art MR heads. The newer heads simply cost more than the older models they're replacing.
Read-Rite, which makes disk-drive heads, has had some trouble of its own with the new technology, and Porter says the company has lost share to Japanese rivals.
And Komag, maker of magnetic media, has been hurt by the trouble at Seagate, its largest customer. Those are all valid issues' the industry is going through some important product changes, including much-higer-capacity drives.
The washed-out stocks have started to attract bottom-fishers. Nicholas Moore, a portfolio manager with the Franklin Templeton Group, in San Mateo, California, sees wisdom in looking for companies which produce products in Asia, where costs are falling in local currencies, and which do significant business in Europ, where economic conditions are picking up steam. The drive stocks, he says, fit that descritpion exactly, and have rarely looked cheaper, Seagate and Western Digital in particular.
Bargain-hunters, Moore suggests, might also consider 3Com, which has been under tremendous pressure lately over concerns about excess inventory of U.S. Robotics modems, and increasing competition from Intel over network interface cards, among other things. 3Com, he says, now trades for less than its private market value. In other words, it's cheap. |
