Dale -
Follows is a history(brief) of HMTT avg disk production "cost"(ACP). It illustrates
well I believe the effect of underutilization of equipment utilization on disk cost. BTW, all estimates, no guarantees...
3Q96 4Q96 1Q97 2Q97 3Q97 4Q97 1Q98 2Q98 3Q98 4Q98
Cost 6.6ish 6.6ish 6.6ish 6.6ish 6.64 6.69 6.76 7.91 8.16 8.23
Obviously my records aren't exactly complete going back. The "6.6ish" estimate is one I
heard from Todd Bakar H&Q on an HMTT CC last year.
Util(%) 98 101 82 85 89 88 79 48 48 57
Those "estimates" are calculated from the total # of MDP lines they have times avg estimated
output per quarter. The "older" MDPs were said to produce just under 400k disks/Q, the newer
ones could produce 500k/Q. (Again, #s are from past HMTT CCs). Now, what is the real
effect of the write-offs? Take down 7 lines(almost 3mil disks/Q), don't pay employees, power,
lights, insurance AND deprec…
They estimated sales for the MarQ should be basically flat or maybe up. Take that same
7.6mil disks and what will the "utilization" ne next year? Around 90%. So, which way would you expect
costs to go? They mentioned in the CC that they do plan on bringing costs "lower" than before…
How? Simple! It used to cost them an avg of around 25cents per disk for deprec costs
assoc with the equipment. And they've got 7 lines ready to start spitting out disks with basically
no deprec cost in the future. Magic? No. Just twiddling.
The write-offs are an acctd gimmick IMO. However, that seems to be how business is done
in the world, especially in the DD game, especially with the indys.
The more disturbing trend however to me is the ASP history:
ASP 11.59 11.11 10.34 10.68 10.77 10.71 10.04 9.46 9.50 9.18
Claims in 1997 were that they were able to offset falling ASPs of "older" media with the
increased price of the "latest technology" high areal density media. Along came the crash
of the DD(&media) market in 1998... And, well, you can see results. Until the capacity capability
of the Indys(KMAG, HMTT, Trace, etc) comes back in line with demand, this trend will not
change. Profits may temporarily get pumped up by financial wheenies twiddling with the books,
but the fact is, there is still way too much capacity out there to warrant any real money making
possibilities.
Todd, the bear. |
