To all: Here is a quick summary of some important points of the SepQ10k from APM It is what I found to be important, however bearish that may be. I would recommend that APM owners read it in detail. Also note, I was totally blown away by the accting gibberish in the middle(Lawrence and Don can you clear it all up - is APM going to make $ off of the loans or what???) I would appreciate if some of the bulls would summarize the good aspects of the 10k.
{My notes are in {brackets}}
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APM 10K Summary
- 1.7GB TFI head is expected to ship thru 3Q98(Jun98){This was a surprise to me I get a totally different read from WDC. They say they are trying phase it out}
- majority of heads in 1997 were shipped in nanoslider(50%) form factor.
- work continues on nanslider(30%) for TFI, MR, GMR
- picoslider TFI successfully shipped at the end of 1997 and they expect this to be majority of TFI products in 98.
- sampling MR heads at 1.9Gb/in^2{approx 2.8GB/platter}
- expect MR to require 2.5GB/in^2 in FY98{approx 3.6GB/platter}
- expect to deliver GMR samples in 98, but not ship until 99.
{So much for all the leapfrog talk}
- customers in 1997 were WDC 79%, QNTM <2%, NEC 6%,
Micropolis <10%, SEG 0%
-APM was notified of significant reductions to its order backlog due to Western Digital's plan to transition from thin film to MR disk drive production substantially by the end of its June 1998 quarter.
- In Jun97, NEC announced plans to discontinue internally developed NEC DDs and engage in a contract manufacturing relationship with IBM. Revenue from NEC during fiscal 1997 was less than 10% of total revenues. The Company expects that revenue from NEC in fiscal 1998 will decline materially.
- Micropolis shutdown and they took a $4.2mill charge.
{It is important to realize here that NEC is gone, QNTM is gone, Micropolis is gone, SEG is gone. WDC is the only remaining customer. And they announced"significant reductions" in backlog}
- Inductive thin film and MR program qualifications are under way with several new customers in order to increase the size of the Company's customer base
- The Company's backlog of open orders scheduled for delivery within six months at September 27, 1997 was approximately $137.5 million, compared to approximately $116.3 million at September 28, 1996, before the reduction in order backlog by Western Digital in December 1997
- WDC recently reduced its order backlog as it transitions from thin film to MR disk drive production sooner than planned.
- pretax charge of $8mil for planned realignment of overseas ops.
- During fiscal 1998, the Company plans to purchase or enter into lease financing for approximately $170.0 million of manufacturing equipment and facility improvements.
However, due to recent changes in the disk drive industry and to the Company's order backlog, it is reviewing all planned expenditures for fiscal 1998
- The Company believes that it will be able to fund future expenditures from a combination of existing cash balances, cash flow from operations, existing credit facilities and
lease financing arrangements. The Company may need additional sources of capital to meet requirements in future years.
{Lots of accting mumbo jumbo here that I don't get.}
- the 1GB head was picoslider, the 1.3 and 1.7 are nanoslider.
- The Company shipped magnetoresistive ("MR") disk heads during fiscal 1997, with net sales representing approximately 4.9% of total net sales. However, low yields on these programs coupled with an earlier than planned end of life on one of its initial production programs limited the Company's ability to
achieve expected MR production volumes. As a result, revenue growth and profitability were impacted
{Read that again. It's straight out of the 10k. Very bearish for APM IMO} {Read it again. They are talking about the WDC portfolio cancellation too}
- The product mix will evolve from thin film to MR disk head technology and MR products are expected to represent the majority of the Company's shipments by 3Q of fiscal 1998. {Well, yeah. The 1.3 and 1.7TFI will not be sold anymore.}
-Revenues, shipment volumes, operating and financial results for fiscal 1998 will be impacted by reduced advanced thin film production levels while the
Company seeks to achieve qualification status on new MR programs, execute production ramps and improve MR processes and production yields on its new
programs.
- The GM increased in fiscal 1997 to 33.9% as compared to 27.0% in
fiscal 1996. The increase was due to higher inductive thin film disk head sales volumes,
resulting in economies of scale, coupled with cost controls.
- The Company continues to invest in advanced technology products and processes and expects that expenditures generally will increase on an absolute dollar basis during fiscal 1998 as MR and GMR technology and process development efforts become critical to the future operational and financial growth for the Company.
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This is exactly what we've all been arguing about recently. IMO it strongly confirms the argument that WDC is the ONLY major customer of APM at the moment and that APM is in fact struggling with MR yields.
As people out there digest this 10k, you'll see the price fall next week even more.
todd |
