Re: Munson's
He said:
In previous down-cycles, one or more suppliers have faltered, opening the door for other industry participants to capitalize on the opportunity. Historically, a period of insatiable demand has followed these more difficult times and the consolidation and/or attrition that ensued.
Unfortunately for some industry players, the re-emergence this time could be more gradual, as all suppliers appear to be executing at the same time.
He doesn't talk about the primary causes of "insatiable demand" that rescued the HDD industry from itself during each of these episodes.
My understanding of the history of this business (admittedly imperfect) is that the HDD industry has a STRONG tendency toward overproduction which drives it into imminent disaster (and indeed some companies flame out each time), which is averted at the last minute by the emergence of a new, massive storage demand driver that creates a market for all those extra drives and then some. This cycle has occurred about three times in the history of the business.
The "gradual re-emergence" that Munson describes will result in economic profits of near zero to most participants. Should that occur, expect miserable returns from equity investments. Again, Munson does not elaborate on primary causes of why this recovery will be "gradual," instead theorizing about supplier execution.
I don't give a rat's ass about supplier execution, if nobody is going to >>BUY THE DRIVES<<. Is this a difficult concept for analysts? Is there an unwritten rule that forbids them to discuss demand drivers?
He said:
The $999 PC continues to draw press. As a result, the HDD industry
has come under increasing pressure to make a fully-functioning drive
for under $85.
This part is interesting to me. That the sector is portrayed as a reactive player in the PC business overall indicates that HDD makers are "monkeys" in the Geoff Moore taxonomy. ("Monkeys" are the participants in the value chain who have no control over the proprietary standards. They generally make the high-cost low margin components of the "whole product." As such, monkeys can never generate sustained returns due to their utter lack of market power.)
In an interesting turn of industry events, Finis Conner (former CEO of Conner Peripherals) has re-emerged on the scene.
It would be interesting to see what Conner has to say about where he thinks buyers of the product will come from.
God bless,
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