Lawrence, you wrote:
<<It's pretty basic. Copper, oil, autos, etc. are relatively stable commodity industries, so the dynamics are pretty obvious to all involved.
The drive industry is the same, but the stakes are higher. Tech has a secular growth rate of say, 15%… What makes this cycle different is that there's too much optimism involved, so no shakeout occured.>>
This was the discussion I was trying to engage on this thread. The growth rate of the drive industry attracts investment when other industries don't. This is the darkside of rapid growth. But you stopped halfway. It's the growth rate of the industry that will much more rapidly absorb this excess capacity helped along by obsolescence of old plants which happens quicker with disk drives than in copper, oil or autos. How much thin-film head capacity is still around?
But let's not limit the discussion to a static analysis and stop here. Don't competitive factors change over time? What are the dynamics of change likely to happen in the disk drive industry? I mentioned one earlier; the consolidation of the PC makers and the changing relationships between OEMs and their suppliers. Another change likely to occur over time will be the slowing of the unit growth rate. This has already happened to some degree as the rates of growth have slowed over the past 5 years. It is the natural process of industry maturation. As the growth becomes more stable and predictable, the investment in this industry will become more rational. The result will be that the cycle will become less extreme. This will allow the industry to maintain more predictable profit margins, which Wall Street will reward with higher multiples. If this is right, there should be a period in the disk drive industry where there is just enough growth to entice Wall Street without the malignant type growth that has caused these familiar boom/bust cycles. If this happens, it will be good news for shareholders.
-Robert
PS Lest you all think I am Pollyanna reincarnated, I am shorting WDC at these levels. It seems like the likely casualty in this competitive war.
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