Seagate Technology - Fundamentals Message Board

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Technology Stocks : Seagate Technology - Fundamentals

STX 272.27

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Nov 26 3:59 PM EST

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To: Robert Douglas who wrote (249)	12/2/1998 1:59:00 PM
From: William Epstein	Read Replies (1) of 1989

Robert Douglas; You ask the right questions and I not not the expert that Stitch is about this industry but it seems to me that some of Seagate's capacity problems also stem from its vertical integration model which makes just shutting an assembly plant down a very difficult and complicated problem because there is a supply pipeline involved with all the components of its sub pipelines too. Also, their time to market is slower because of vertical integration. Every detail of supply must be worked out before production can be ramped up to profitable levels. This makes differentiation more difficult through new product introductions. I was once an automotive designer and at that time the auto companies took 10 years to develop a new car from concept through production. Iaccoca/ Chyrsler lowered it to 2-3 yrs and showed the industry it could be done with the introduction of a 2 billion dollar design center and their profits shot up. Also when the time to market is too long, companies often reject good product ideas because they are afraid that by the time they get into production the product will be outmoded or it is just too expensive to develop for the volume they think they can sell. This too, makes differentiation difficult and causes losses of profits that should have been there. I can't answer for the other manufacturers as I know very little about their models. When you are operating at about 85% of capacity and have a very long production run vertical integration make a lot of sense. It is probably the most profitable way to operate. However, if you have a quick changing production mix because the market is constantly changing then vertical integration can be a dead weight around your neck. Outsourcing becomes critical. This is GM's big problem and the source of their troubles with their unions. PHOTOMAN

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