Hello Alan:
<<The Koreans are similar, but with a subtle difference: when they have achieved market dominance, they still reduce the price, and kill themselves. That is what makes these guys so dangerous, as they are such poor business judgement. Did you know for instance that last fiscal year the top 30 Korean companies made a total of $65M between them?>> How else would they have killed their economy? I agree with you and hope they have learned a lesson.
<<Correct, but the demand will be for very low end only in the foreseeable future. How much disposable income do the 45kk families have pro capita? Not much I fear.>> The BW did not quantify the disposable income but they implied a lot and that is believable by me. These families are very lavish, can burn a lot of it to show off, quite like the American style. <g>
<<Having said all this, I ask myself is price so important? Look at the JTS ,Champion" range. It must be the cheapest 3gig drive on the market, but it is not going to stop them going chapter 11. Can anyone explain this to me?>>
I think there is a perception of quality. I know a computer engineer who says, "Oh! those cheap, bad Maxtor drives!" Maxtor is cheap, but the perception of quality is not great. What you said in your earlier paragraph answers why such companies can go to Chapter 11: For example, the Korean companies' pricing generates a little apparent profit, but a huge real loss at the end when the cost of capital and of financial distress is counted. These chaebols have driven the nation to the brink of disaster. [They did not believe that their banking system would collapse. Some of the smartest Korean finance experts do not want to leave the USA. <g>]
You may know that one of the biggest exports of the US is American business education. US has produced tons of qualified business graduates (more than they need!). Many of the Asians who come here for business education stay here. One very important thing these MBAs learn is to calculate the real profits of a business, not just get swayed by quarterly earlings. The real profits have to account for the expected cost of financial distress. If a company's pricing policy does not include this cost, they will eventually go bust at the time of a calamity. [Americans have learned these in a hard way. Cf. Eastern Airlines versus Delta.]
<<I have NO RESPECT for Samsung, they are parasites. They are copiers and not innovators. If Samsung had never existed, the current level of electronics would not have changed in the slightest.>>
In the area of computers, a little innovation makes a huge difference in the attitude of customers to buy products from innovators. [Even a box maker like Dell is known to produce computers that fail less frequently than others. There was a Fortune article that said how Mike Dell achieved this and the perception, creating panic for other box makers.] The continuous innovation that takes place in the American companies is a reason for why the Japanese, Koreans and other Asian companies (I am not referring to people from these nations) have not been very successful in the field of computers. Indeed, the innovative Asians, Europeans, and people from other parts of the world have assembled here with Americans to make the field of computers belong to the USA -- this IMHO will not change because innovators (from elsewhere in the world) have to come here to continue to innovate. [No other country can easily copy the centers of innovation like MIT, Stanford, Berkeley, Carnegie-Mellon, Caltech, Urbana-Champaign and National Supercomputing Centers.] USA has the critical mass that will get bigger and better in quality in the field of computers. People elsewhere can mass produce based on innovations here, but the innovators in the computer science area will control those mass production facilities, IMHO.
I suppose QNTM, SEG and IBM have innovative ideas for DD and so there may be a sudden burst of news. For now, their models have not been easily replicated. Will Samsung, Fujitsu and Maxtor succeed? Well, they had an illusion of profits because the cost of capital was small with unlimited supply from government banks which have now gone broke. Now, they have to recast profits and pricing policy vis-a-vis the new paradigm of exorbitantly highed COC. [Even the Japanese Govt is going to raise money by issuing new Govt bonds (Yahoo!), which will depress the bond prices and increase the interest rate. Government of Korea's bond issues are receiving no takers, unless the rate is 40%, a Korean Investment Banker was saying. No free lunch!] The other alternative for these companies is to continue to produce low-end DDs below cost for sometime and then close the divisions. This is what the QNTM CEO was hinting during the CC; though, he did not name anyone.
Sankar |
