Disk Drive Sector Discussion Forum Message Board

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Technology Stocks : Disk Drive Sector Discussion Forum

WDC 181.08

+3.5%

Dec 19 9:30 AM EST

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To: Ron M who wrote (5306)	1/22/1999 3:22:00 PM
From: Mark Madden	Read Replies (2) of 9256

After hearing conference calls and seeing earnings results I get the impression that great management is responsible for turning these companies around. The CEO's say increased efficiencies increase margins and it is their programs that increase efficiencies. Perhaps they are trying to make themselves look good after experiencing improved conditions that they had no control over. It seems the companies were efficient when demand was high and the companies were running at full capacity. When demand dropped companies became inefficient because they reacted too slow and had excessive inventories in the pipeline. With excessive inventory and no bargaining power the prices dropped too fast to support their bloated capacity. It sounds that they finally aligned capacity with demand. I am not trying to say it is a small thing to align capacity with demand. Companies must be able to predict demand to make today's capacity decisions. Capacity changes are difficult. They can not make fast changes in capacity because it takes time to increase numbers of trained experience people and it takes time to make sophisticated equipment operational. Reducing capacity throws away investments before their initial costs are recovered. And, it inevitably causes increased ramp up costs later. It seems predicting demand is the key for companies to perform efficiently and it is important for us in predicting stock prices. SI has many experts that keep us well informed on the technical aspects of constructing drives, drive capacity and speed, and development of future drive technologies. This wasn't enough to save some of us from disappointing results over the past year. We couldn't see how deep or long the downturn would be because we couldn't predict the demand. I'm sure the industry spends millions trying to predict demand and still missed the mark as badly as we did. This last downturn is the worst I have seen in ten years of following the industry. I guess the moon, the sun, the planets and the sun all aligned just right to cause the anomaly. Closer to the point, maybe it was:  Windows 98 being late and non-eventful  Competitive forces forcing Intel to release Pentium II chips before earlier chips had finished their run  Competitive computer prices giving first time buyers options of cheap low capacity computers  The Asian crisis forcing some companies to dump inventories at any cost At any rate, demand fell, companies became inefficient, and stock prices dropped, even though technology soared to increase drive performance at incredible levels. How can we predict demand better in the future? Are there indicators that could help us? I noticed the semiconductor book to bill ratio (considered a lagging indicator) peaked in February 97 and bottomed in October 98. The drive prices in one of the warehouse retailers began dropping more frequently and further in February 97. These are two indicators I will take more seriously in the future. I think the projections and predictions by many of the analysts are designed more to get attention than they are to inform. What other indicators might we use to predict future demand? Any ideas? Mark

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