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But it isn't just that DDs are out of favor. It is that the tape business and the drive business are, or have been, fundamentally different. The former has longer cycles and higher margins. Judging from the how the competition has stumbled over the past few years, it would appear that barriers to entry are higher than in the drive business, you can't conceive of, e.g., a former exec of EXBT or DLT saying in October that he will set up shop to sell tape backup drives and be ready for volume production in April using all third party materials, and have people take him seriously, as you have seen in drives. But the tape business, now close to 30% of QNTM's revenues and virtually all of its profit, gets buried in the valuation of the DD business, not the other way around. Maybe one day the opposite would occur, that the low margin DD business would get a higher PE because of the presence of the tape business. I don't know. Undoubtedly that happens at some companies (perhaps GE is an example?). But this way, at least it is cleaner, you have a choice about which one you invest in, and it should, IMO, be good for the stock price over the next year, assuming, of course, that the transition to SDLT goes well, and that SDLT dominates its sector in the same way that DLT has. |
