I'm a long term bull, short term I also think storage is bearish.
Re 1. Big 3 (actually 4 if you count IBM) This theory has been seriously tested lately with fringe players piercing the price bubble (Maxtor,Samsung). Yet I think you have it wrong. Not one among SEG/QNTM/WD suggested an oligopoly, only that limited players would be more likely to exhibit restraint. We *are* seeing restraint (witness WD cutbacks in capacity, similar statements from QNTM, and some level of restaint from SEG -- although they are p*SSed off about losing market share and are in no mood to help secure the pricing structure. What we can say is that overcapcity issues may be solved more quickly (depending on whether Samsun and Maxtor continue trying to buy market share at any price. We will also see whether OEMs *really* want the c(arguably) cheaper/lower quality drives from thes other manufacturers, or a simply trying to use them as a lever to ensure low pricing from the real suppliers. Right now is not IMHO a good test, since it will take until next Spring or early 98 to see how the Big 3 respond. I believe some continued rise in demand will help clear the inventory and there will be some capacity restraint, through not at the same level of an oligopoly. You can judge for yourself how to best classify this phenomenon.
2. Revenue Growth. -- No argument, except that I buy the QNTM notion that we should view the storage industry more broadly. In other words: don'd discount their success in tape storage simply because it's a different media. View it the same way you would any other diversification effor -- from low end to high-end. No one is "disregarding" losses at high end server market. So it appears the issue on growth/margins comes down to this: did you bet on the right sectors. Remember, QNTM was also losing money in portables and exited removables soime time back -- for better or worse. Right now it isd for better (see WDC exiting 3" mkt.)
3. I doubt we will approach stock price of zero, and so do you. The real question is whether these disounted levels adequately reflect the uncertanty and real problemse these companies now face. I think WD still has a way to go down. I think SEG is being accforded the "natural" premium allowed to the indsutry leader -- tho they may lose that status verrrry soon. I think QNTM is being unfairly punished.
Relating this back to our diversification discussion, I think it is more dangerous right now to "buy the sector" than it is to buy a stock (QNTM in my case). I have currently un-diversified my DD holdings by selling stocks like JBIL, APM, WD, and SEG, all of which gave me varying levels of return, but ultimately turned sour all at the same time. I did not choose to bail on QNTM because I feel they have the best prospects at this price. Yes, things may get worse. Yes, they may miss their #s. But as a value play and with a 2-4 year horizon, I do not feel we have witnessed a sea change in this industry. I am open to convincing if SEA gets wors or if I hear a scenario where QNTM gets hurt worse than the news on the table -- AND I'D BE VERY INTERESTED IN HEARING ANY PLAUSIBLE SUCH SCENARIOS FROM ANYONE ON THIS THREAD (not shouting, just pleading). |
