I'm Wall Street. This is my read in the last few weeks(esp today)
WDC is going to break even in DecQ97 = $0.00. (Before one-time charges)
That is a drop in GM of AT LEAST 5% from last Q. This is bad for QNTM
(even if they have DLT...) If you look at the GMs from WDC and QNTM there is
high correlation. I calc'd the GMs of JUST the DD products by taking out assumed
DLT GMs of 33%, taxes = 26%, and similar expenses - for the last 3Qs I get
15.0, 16.1, 15.5% for the DD products. Actually the absolute #s don't mean
a dang thing. The trends do. Logically they will follow each other because they
are in competition. Product cycles, execution, product mix, blah de blah will
effect the GMs, but I believe that the GMs will ALWAYS follow each other.
Do you really expect WDC can drop 5% GMs and QNTM not be effected?
I'm not talking average product GM, I am talking DD GM(excluding DLT)
Expected earnings are around $0.46(tape), $0.36(desktop) and $-0.14(high end)
Every 1% drop in DD GM costs them $0.07EPS. WDC lost >5% GM, QNTM
will suffer too. How much? Who knows, but they will suffer a loss. Sure,
they have a different product mix, blah de blah, but the GM trends are there.
I don't know why QNTM hasn't said anything, but it is coming. It must
because the GMs will have to fall just like WDC(and SEG for that matter).
IMO the street MUST be expecting an announcement. QNTM currently has the
LOWEST forward looking PE for 1998 AND 1999. The ONLY reasonable
explaination for this is that they expect lower earnings than what are currently
Forecast.
Further look into the #s shows that the DD GM for
WDC dropped 2.7% in the SepQ(could this have been a warning?), QNTM dropped
only 0.6%. This Q WDC dropped 5% or so(double SepQ) so QNTM must drop double
last Q which is 1.2% = $0.08. It must be that the product mix, execution, efficiency,
blah de blah gave QNTM an advantage in the SepQ GM game.
I can kindof see how LBs came up with their $0.07EPS
downside risk for this stock based on these #s. Of course these are MUCH lower than
what the street is expecting for the lowered estimates. IMO QNTM will miss the current
estimates, just not as much as the street expects(I think they are looking for 20% to 30%
lower for 98). Work out the #s. I am sure that QNTM was assuming a realistic GM for
the DD products when they guided ANALsyst to the current forecasts. There is NO WAY
they could anticipate this amount of pressure in the dist channel. I find it VERY hard to
believe that the GMs won't be pressured for QNTM when it has pressured WDC and SEG.
todd
And before anyone asks, I'm long QNTM. (Even bought more at market on the open - submitted an order before I went to work... Good timing huh? I think we'll see a miss, just not as much as the street thinks...i hope) |
