Thread,
Since divesting SEG I am out of the sector and have been looking at new investments. In addition to the cash freed up by the SEG sale I have decided to increase my equity position by a tad, but still feel very wary of overall economic conditions.
I am publishing some picks here to encourage any comments any of you may have.
I am drawn to the corporate storage sector as I believe there is near and long term growth in this market per the many discussions we have had here and on other DD threads.
Here are highlights from the 1998 DISK/TREND Report on disk drive arrays:
Disk drive array worldwide unit shipments are expected to rise 24% in 1998, with over 1.3 million arrays of all types. On the other hand, sales revenues are forecasted at $13 billion for the year, representing a more modest increase of 13.4%. RAID systems designed for use with networks and midrange systems generate 71% of the total disk drive array sales revenues, and are seeing the strongest current increases, with 1998 sales estimated at $9.3 billion, up 18.9%. Arrays for mainframe computer applications, with 27% of the total array sales revenues, are having a relatively good year but are expected to gain only 1.4%, to $3.6 billion.
Disk drive arrays designed for use in network server and midrange system applications have a strong lead in current array sales revenues and dominate unit shipments. Network/midrange system arrays are expected to provide 94% of 1998 worldwide array shipments, boosted by growing penetration of the expanding open system server market by disk storage subsystems with RAID capability.
The RAID business is tough on manufacturers which cannot find a way to secure a significant market share. As the disk drive array business has steadily grown in size during the 1990's, the list of participating manufacturers peaked during 1995, with 179 companies offering disk drive arrays under their own name. The new report indicates only 127 manufacturers remain in the disk drive array business in 1998. IBM, Compaq Computer and EMC were the leaders in worldwide 1997 sales. 75.6% of the existing disk drive array producers are headquartered in the United States, and U.S. companies produced over 90% of the 1997 revenue total.
The demand for disk storage capacity used with mainframe computers has grown throughout the 1990's, but the average price-per-megabyte for high- end disk drives is decreasing even faster, depressing the long term outlook for disk drive array sales revenues in the mainframe market. After a slight increase in 1998, sales revenues and unit shipments of mainframe arrays are expected to gradually decline through 2001, despite increases in the total amount of disk capacity provided, as networks based on open systems continue to invade mainframe territory.
The most popular type of disk drive array configuration is the complete subsystem, sold by the originating manufacturer with disk drives and all other necessary equipment, ready to install. Complete subsystems generated 47.1% of all disk drive array shipments in 1997, growing to a projected 52.3% share in 2001. Array controller boards, used by system manufacturers, integrators and do-it-yourselfers to assemble complete array subsystems, held 44.1% of the 1997 array total, but are destined to decline. The 2001 share for board-level array controllers is forecasted to decline to 40.1%, as some disk drive arrays designed for personal computer networks start to use low cost array chip sets which can be mounted on system motherboards, eliminating the need for separate array controller boards. Software based array products are expected to hold 7.7% of the 2001 market, with usage concentrated in mirrored disk, or RAID-1, applications.
A fundamental question is whether there is room in a market so dominated by one player, notably EMC. I believe there is, based on targeting markets.
My two pics are targeting video/multimedia storage applications and database , mission critical applications respectively. I have recently purchased MTIC and CPCI.
MTIC
The company has had declining revenues and profits last year as follows: ANAHEIM, Calif., October 28, 1998 -- MTI Technology Corp. (Nasdaq:MTIC) today reported net income for the second quarter of fiscal 1999 ended October 3, 1998 of $0.8 million, or 3 cents diluted earnings per share, compared to net income of $4.1 million, or 14 cents diluted earnings per share, in the same quarter of the previous year, and $4.1 million, or 14 cents diluted earnings per share for the immediately preceding quarter. Total revenue for the second quarter rose 3% to $48.0 million, compared to $46.8 million for last year's second quarter, but was down 3% compared to $49.4 million for the first quarter of fiscal 1999. Net product revenue for the second quarter was $37.3 million, compared to $38.0 million in the second quarter last year, and $39.2 million for the immediately preceding quarter.
Service revenue for the second quarter of $10.6 million represented a 21% increase over the $8.8 million reported in the second quarter of the previous year, and a 4% increase over the $10.2 million reported in the immediately preceding quarter. The gross profit margin for the second quarter of fiscal 1999 was 30.2%, compared to 35.6% for the same period last year, and 36.2% for the first quarter of fiscal 1999.
These declines were rooted in the declining price per megabyte and decline in corporate sales that many storage companies saw last year (a notable exception being EMC, the 800 lb. Gorilla in the market).
During 1995, the company made a strategic decision to transition resources to the Unix and NT environments and implemented the plan during 1996 and 1997. In early 1998 the company entered into a technology agreement with Hitachi that provides a path into the mainframe storage sector while giving credence to MTIC as a world class supplier of open systems RAID, software, and services.
MTI has certain experience through its support of VMS clustering for many years and is leveraging much of this centralized server and storage architecture for the Unix and Windows NT environments. In addition their products are optimized for mission critical database management. Database applications account for as much as 80% of Unix and NT storage consumption. Applications benefit from specifically optimized storage subsystems. The right choice of caching algorithms produces the highest possible I/O performance. MTI has been a joint partner and user group member of the leading database providers, which include Oracle, Informix, Sybase, and CA Ingres. The company leverages this experience by bringing to market software utilities, microcode updates, and solid state disk products. MTI's solutions increase overall performance and ease storage management.
Few other companies offer the level of reliability required in this market segment. Centralized disk arrays require an incremental level of availability with active/active (online and redundant) controllers. EMC, the third-party market share leader, does not currently support active/active controllers or mirrored cache, though MTI does have these features. As an example of MTI's technical ability, the Gladiator ESS has received the RAID Advisory Board's highest classification of fault tolerance, DTDS+.
The stock is selling at $5.313 vs. a 12 month high of $17 and a low of $3.18. They are debt free and have about $6M in cash. Book value is $1.71. The trailing P/E for the year ending April,98 IS 8.2
Implied P/E based on the mean estimate for year ending Mar.,99 of $.27 per share is 19.6. Estimates for 2000 is .47 per share or an implied P/E of 11.30.
For an interesting overview of MTIC published by IDC see: mti.com
The company's web site is at mti.com
Ciprico:
Ciprico designs, manufactures and markets high-performance storage solutions preferred by the leading visual computing and digital media professionals throughout the world.
Founded in 1978, Ciprico designs and sells high performance disk array products specifically designed for computing applications that require high speed image capture and display, high resolution image playback, sustained performance and data protection. Our primary focus includes the Entertainment, Remote Sensing and Defense Imaging and Geoscience markets. In addition, the Company seeks opportunities in other markets with high-performance storage requirements, such as Medical Imaging and Digital Pre-press.
The Company's disk arrays use industry standard protocols to interface with all open architecture computing platforms, including Silicon Graphics Inc. (SGI), Sun Microsystems, Inc., Hewlett-Packard Company, IBM Corporation, Digital Equipment Corp., and Microsoft NT platforms. Packaged integrated storage solutions are available for SGI, SUN and NT host environments.
Ciprico disk arrays are sold worldwide into the digital visual content markets where computing environments require high performance, large storage capacities, and fault-tolerant features. In fiscal 1998, the Remote Sensing and Defense Imaging market accounted for 34% of sales, the Entertainment market accounted for 28% of sales, and the Geoscience market accounted for 25% of sales. The Company believes the growing application of digital technology, the rising use of the Fibre Channel interface and the fiscal year's upcoming new product introductions will increase market opportunities for Ciprico's products.
ciprico.com
CPCI's recorded results for the fourth quarter and fiscal year ended September 30, 1998 included a sales decrease of 15% to $7.4 million compared to $8.7 million for the same period last year. Net loss for the fourth quarter of fiscal 1998 was $192,000 or 4 cents per share compared to net earnings of $875,000 or 16 cents per share for the same period last year. For the year, sales decreased 17% to $30.1 million, compared to $36.4 million last year. Net earnings decreased 84% to $663,000 or 13 cents per share on a diluted basis, compared to $4.2 million or 79 cents per share last year.
The decline in revenues and earnings have resulted in a recent stock price of 8 1/8 against a recent book value of 9.20. The company has no debt and $30M in cash.
Do your own DD.
Best,
Stitch |
