"As capacity has come on line, the industries have matured and competition has heightened. I am starting to believe that those halcyon earnings levels will never return. I mean, why should they?"
Because (1) there is still growth to come, and (2) there is incessant change, which will always produce winners and losers, and which will always reward those who see, create, or exploit the change the quickest. I still think that consolidation will come in the DD sectors--I just can't predict when it will happen. Companies will go belly up or will merge. Even today with the fierce competition out there the number of DD vendors and independent component suppliers of any size has shrunk compared with a few years ago. Eliminate any one of the top 5 or 6 DD vendors, and the others will suddenly be in a much better position.
But it isn't just increased capacity that creates the problem--it also has to do with the ambitions of the players who have developed the capacity. If the Koreans and Japanese and Taiwanese (the latter in semis) just continue to play a market share at any price game, then the same profitability won't return. But Maxtor as an independent company will be different from Maxtor as a Hyundai subsidiary. And will Samsung, Fujitsu, et al be able to continue along the same path of sacrificing profitability for market share if the Asian crisis continues? These companies have other, far larger divisions than drives which also have steep capital investment needs; will they continue to allocate money to drives if drives don't give them a decent return? If they do--and they survive with those slim margins--then you are right. If not, eventually profitability will return, IMO.
added later:
But if you add up the profits of the [few] winners, and the losses of the [many] winners, you might not get a very big positive number. |
