<you could see a 20 plus p/e very easily. >
Remember we are talking about a disk drive company. Cyclical, unpredictable, burned lots of folks in the past, and suffering from demand crisis.
This is not a Hutchinson bash. It can be applied to every company in the sector. Last years mantra that things had changed and the industry had matured caused people to forget. Momentum built and prices went up fast only to crush late investors who are still smarting from 50% losses, if they were lucky.
Some how, box makers have held lofty values. They've stolen the profit from components. They've reworked their business models to being the most effecient manufacturer instead of intellectual power house. People aren't afraid to buy a computer without serious hand holding which has allowed them to cream all the mom and pop shops that use to bundle services with sales. Intel has commoditized the motherboard to where it's harder to tell the difference between vendors. So, rather than call for a improving PE on components, maybe you should call for the next wave of stocks to crash being box makers.
I ask CEO of Quantum where they are going to see new money coming from and he says tape. They have no innovative way to drive disk sales. Sure, they try to cut costs, add a little density and maybe speed up a little, but IBM is the only company trying to create new markets that I see. QNTM, SEG, WDC all play the role of victum going with the flow of cycle. There is nothing exciting coming out of this group.
No, any investment plan on values reaching 20 PE's is perhaps unwise. I should think 10 to 15 tops and that would be at the high end of the cycle. Just the "I've been burned" factor alone will kill these stocks for quite a while. I lost so much money on RDRT a couple years ago it's amazing I survived. This company went from greatness to shocking desparation in less than a year.
Can you tell me why Hutchinson has lost so much market share in conventional suspensions? Can you tell me how they will hold market share in value added suspensions once competition arrives? The fact that TSA is reaching 50% revenues is only helped by the loss of other business and the fact that they've installed 5 times the equipment they really need just to make up for ineffeciency.
TSA seems to be the best product on the scene. Sure wish HTI could have ramped faster. I'd buy in a second if they hadn't fumbled the ball on this for so long. Hard to be confident in their future performance. They could have sailed though this period with stellar results if they had coped better. This could have all been covered up if the $1000 PC and the Asian crisis hadn't come along, but they didn't have the plan in place to suffer any set backs which caused huge losses and big debt.
Anyway, sure looks like the fundamentals of the industry still suck. Some chance for bottom fishing, maybe, but to go back to the idea that growth can warrent high PE's is unwise in my opinion.
Look at some semiconductor equipment makers. They have the same stories. They've got great gear, know how to make it and deliver, but their customers are broke. Over capacity, no capital for investment look to be at an all time crisis point. They trade often well below book value. Some nearly trade at their cash level.
Things are not going well. But can it get worse? Sure looks like we've not seen the worst yet for Storage. Not one merger or failure yet that I'm aware of. Still no application to demand the bigger drives. Still messed up with y2k spending. Still looking at 50% of drives going into sub $1000 PC's with probably single platters. Still playing dog boy to box makers getting no profit for work and now expected to carry inventory costs. Not a single computer advertises the drive maker going into the box leading to zero differentiation.
Ford and GM still trade for PE's less than 10.
Regards,
Mark |
