DD net margins at QNTM are dependent on the sector, desktop vs server/enterprise. The high-end is always in the red and you might remember that WDC has only been minimally involved in this area [although they picked it up last qtr]. Yes, the worst case scenario is that the non-DLT business turns in net loss, but I'm hearing that OEM sales are strong. Take a look at all the high-end Pentium-II workstations shipping ... they all have Ultra ATA drives which, for the most part, are dominated by QNTM. What other manufacturer has 3.2/4.3/6.4/8.4 gb Ultra ATA drives to stick in those Dell, Compaq, Micron, etc. high-end computers? Also QNTM has had plenty of opportunity to drastically lower estimates but has not chosen to do so. While that does not preclude their missing numbers, I think it would indicate that they are not seeing the meltdown that SEG and WDC are seeing.
Also, the one-time charge is addressing the biggest problem (enterprise drives) and should help staunch the bleeding there. With regard to your numbers, remember that DLT is growing very quickly ... we can use a decent 50% annual growth rate. This will also change the relative contributions of the two businesses, particularly if the DD sector hits a rough spot. |
