"...I SOLD my shares yesterday @ $16 3/8..."
Good move, Todd.
I agree that the WDC cutbacks are just now rippling through the supply line, but keep in mind also that QNTM has indicated that it reduced its build plan targeted at the distribution channel [in the Sept. quarter, QNTM had a ~65% OEM/~35% distribution channel mix)]. in the December quarter AND that it will reduce its overall build plan this quarter by about 10%. If I am not mistaken, QNTM is a customer for RDRT's 1.1 GB TFI heads (used in the Pioneer value line sold through the distribution channel only), 1.3 MR heads and 1.6/1.7 MR heads. These are the RDRT products that will most likely get the cut with the offset being the ramp of the 2.1 GB, 2.5 GB (QNTM?) and 2.8 GB (Maxtor, SEG, WDC, etc). I don't think it's prudent to assume that the ramp to those leading-edge MR heads will be enough to offset the accelerated phase-out of RDRT's trailing-edge TFI/MR heads.
Assuming QNTM hits its target of about 7.0 million units this quarter,
a 10% reduction would translate to about 700,000 disk drives. Using the 1996 average of about 6 heads per DD, that's a potential shortfall of about 4.2 million TFI/MR heads in this quarter. Using an 80/20 mix (the Pioneer is the only TFI product in QNTM's lineup) and using $6-7 ASP per TFI head and about $10-12 per MR head, RDRT is faced with the prospects of replacing roughly $39 to $47 million with sales from its newest MR heads (2.1, 2.5, 2.8). A herculean task, to say the least.
As if those factors are not enough, though, the drive makers and their suppliers (as well as the entire PC supply chain) have to take into account the fact that the PC makers are in the process of reducing their PC inventory to about 2-3 weeks (with the corresponding reduction in price protection). The disk drive makers have got to be
antsy to start reducing their abnormal inventory levels esp. since ASPs are going down so fast.
The visibility on this transition is made even more diffciult by the fact that the top tier vendors (Compaq,IBM,HWP, Packard Bell) are moving more quickly to their BTO/CTO models (2 weeks inventory) while the 2nd and 3rd tier vendors are moving more slowly. It is difficult to make this kind of major transition when a PC maker is losing market share to the top tier vendors. The top tier vendors only account for less than 40% of PC sales!! This means that the ripple effects from the reduction in inventory by the PC makers will not only reduce visibility and add uncertainty (read: daytraders' stocks), but will also produce all kinds of negative surprises for at least 2-3 more quarters. |
