>In fact, the numbers you posted show that Komag exceeded WD in operating margins all but one of the quarters you listed.
Yep, but my point is that operating margins don't mean much if you have such extreme costs just to keep up with the Jones. You were looking at the wrong row, even though I put it in bold just for you ;)
Let's say you and I fund SLE (Stitch-Larry Enterprises) with $500K each. If SLE buys a Treasury Department Money Printing Press(TM) for $1 million and it prints $1000 a day, that means we break even in 2.7 years or so. In cash flow terms and the real world, we lose the million upfront, but we get back $365,250 per year. In accounting and fantasy world, we can amortize the machine over 5 years, and show a profit of $165,250/year from the get-go, or 16.5% Return on Equity.
No big deal so far. What if the machine breaks after 2 years? (If this looks like an unsustainable business model, it is. However, it is possible to maintain, even grow this business. It is left as an exercise to the reader to figure out how... Person with best answer gets to run SEG for a year)
>Let me venture one more question to you. For the long haul would you then select WD over all others if you had to place a bet on a disk drive company today?
Of course not. But I would buy a basket of HD makers over a basket of the heads and media boys. |
