Chuck,
A good post to begin a discussion on "where we're at now". Much needed, although my guess is that any real clarity is impossible, not only for us here but even for the CEOs of the companies themselves. A few rambling thoughts of my own:
1. If IBM is in a "funny position" because they are trying to sell to their competitors, then so surely is Fujitsu, Toshiba, NEC and Samsung for the same reasons. But IBM's position is even "funnier" because they actually have powerful R&D in addition to being drive vendors. One speculation that would probably really turn things topsy turvey if done: what if IBM spun off their drive division to their shareholders? I haven't seen any speculation that this might actually happen, but we would certain be talking about a "Big Four" instead of a Big Three if it occurs.
2. I'm not sure that Toshiba is really trying to increase their market share. They certainly are producing drives for portables, where they are leaders. But do they try to sell their drives to others? And what other types of drives do they make? I don't know. Fujitsu obviously is trying to increase their share, and is using the strong dollar to their advantage. But I don't think, at least, that they have the same R&D capacity as either Seagate or IBM. Of course, since drives are entering a period where the technology to expand drive capacity is ahead of the need for that capacity and has become relatively widely available, that probably doesn't matter much, and won't until things like 3-D, more color digital photography, videos, etc. expand the need for capacity and speed.
3. I would imagine that Hyundai will try to spin off Maxtor at some point, if they can get healthy enough. Or will exit the business if not. But will they have staying power as an independent? A few years ago, Maxtor caught one cycle, and made some noise, but couldn't catch the next cycle, and ended up essentially broke when Hyundai bought them. So it goes in this ever-changing, brutal business. Witness WDC and to a lesser extent SEG now. But both of these companies have a lot more depth than the old Maxtor ever did, especially Seagate.
4. I don't see WDC going under unless they are blowing a lot of hopeful smoke when they say that their MR conversion is going ahead of schedule. Yes, they'll have a difficult few quarters ahead. And they may lose some market share when the dust settles. But they have no debt, have some cash, and if they show the bankers that they are capable of producing viable product, they will have access to credit if it comes to that. Remember: when things aren't going well in this business, it is almost always a deep crisis and predictions of bankruptcy abound. But this is a strange this to say about a company that has made as much money as WDC has in the past couple of years, even though it is also true that stranger things happened. Worst case, IMO, is that one of the Japanese or Korean companies that seem to want to be in this brutal business so much will buy them out. Of course, when or at what price is another issue. But they are certainly an interesting speculation at $17-18/share. Especially for a January Effect trade, and possibly also for a 2 year hold.
5. I am biased toward QNTM as well. I still think that they are the best buy right now, and, not only the best buy, but that they are a screaming buy right now. The only reason others don't agree is that their stock price is depressed--Goldman Sachs was being showing both realism and integrity in saying that they think it is an $80 stock in the face of the sell off. That sounds outlandish with the stock languishing at or below $25, but it isn't. And sometime in the next two years, it seems to me more probable than not that it will more than reach that goal, IMO.
Sam |
