I was long on this stock for 3 years. Made a lot of trades, but basically held my first shares through everything. Profits galore and the market seemed to be easy to call, but I think that has all changed.
Basic problem is Innovex has lost it's hold on the market and competitors like Hutchinson and 3M are taking marketshare. Competition has cut margins. The HIF product is not as good as they said, and we hoped. Innovex hopes to improve this with a prebonded suspension, but I think they've missed getting the product to market in time. Obviously, they underestimated the customer's desire to have a complete product like TSA.
So, (maybe) you can write off the disk drive business as one that will slowly shrink, and then place a bet like Doug that Innovex will be able to develop a new market for flex circuits in chip packaging. I think this is going to take a few quarters to develop and that doesn't seem like a pressing reason to invest now.
I fear that we will have at least one big market correction as investors wrestle emotions over y2k issues, preceived or real. At that time, Innovex might offer better value. We should also have better indication of their chip business then.
Innovex has not proved very good at developing new businesses. They failed in software and medical devices. I thought the software business was a great failure as they were getting great reviews with Best of Comdex awards 2 years in a row. There traditional wire business has no marketing skill required and maybe the flex circuit business for chips will be similar. Still, they will have stiff competition and must prove themselves to a whole new crowd.
Finally, the sector has been rallying and it looks like whispers of better earnings must be circulating. Innovex has not followed the group and this indicates to me that the big buyers have lost faith and will need some good news to re-enter IMO.
I would not hesitate to buy Innovex if they announce a new customer. Maxtor seems the most likely and they would probably be buuying the FOS pre-bonded suspension. Any news like this would provide a vvery rewarding short term trade. Without a new customer for advanced Interconnects, I think Innovex has little reason to be a compelling investment.
Regards,
Mark
PS The fact that Bill Murnane is a cousin doesn't really bother me. I think he did a great job with the WAT product and it was very impressive how they managed to meet customer demand in the period of mega growth without blowing margins or blowing out Cap ex.
Hutchinson on the other hand lost a lot of suspension business by not meeting demand. Their Cap ex has been obscene as they try to muscle TSA out the door without getting the yields in place first. Anyway, they've missed by a long shot getting their TSA product to market, but that seems to have changed and will be a critical factor in the competitive picture going forward. |
