Another Jubimer post.
Subj: More Random Notes
Date: Thu, 6 Mar 1997 20:58:25 EST
From: Jubimer
Message-ID: <19970307015800.UAA13446@ladder01.news.aol.com>
"In the end, the best
technology at the lowest cost will prevail."
---David Brown is the senior director of OEM disk head products for Seagate's Recording Head Group in
Minneapolis, MN.
This comes from Insight at IDEMA.org for Jan/feb 97.
It is a quote that is a springboard for some further comments about keepered media and the coming war for market share in the disk drive industry. Now the drive companies have had a very nice run with record revenues and earnings and that has been generously reflected in the share price. Heck, I owned WDC and wished I had had more. But one should not forget we are talking about companies with razor thin net margins. I'm not gonna get
specific about the results to present date, but WDC's net margins were in the 3% range in FY 96. Also, present psychology on those stocks seems to suggest that hard drives are no longer commodity items. However, 6 months ago the market's judgement by way of stock prices was that they were commodity items. So that view is still a work in process.
Now I think a majority point of view is that we need to wait for one of the big disk drive manufacturers to deign to accept keepered media into their drive programs. However, I gotta wonder if it is the drive manufacturers who have all the power and leverage or if it is the PC manufacturers', Compaq, Dell etc who play the tune that everybody else must dance to. Does Compaq's customers care what brand of disk drive is in their PC? Does Compaq
care who they buy from as long as they get the most gigs for the lowest cost with reliable technology? Do you mean to tell me that Compaq wouldn't buy their so many million of disk drives from Maxtor if they got a $10 or $15 or $20 savings on their cost of goods? Or do they have such a warm and fuzzy relationship that they would gladly pay more just to buy from Western or Seagate?
Here's another point and I am borrowing this a fellow traveler in Ampex stock: Does the consumer care if there are inductive or MR heads or keepered disks or peanut butter on the platters along as they can get the most gigs at the lowest cost and it works? You get a million catalogues, I'm sure, from PC connection or INsight or Mac World etc. Take a look at the hard drive page. How many tell you whether the offering has TF Inductive or MR
heads? They usually don't. I look at the price and the gigs. Case closed.
I am so glad for the engineers on this board. It saves me a hell of a lot of reading. But the bottom line is not a debate over bias or preamps or flux. If Wester n Digital has to take their net margins down to 1 or 2% to compete with Maxtor, then they will buy keepered. What do you think a couple quarters of lower than expected eps would do the stock price? There is no margin for error here.
I realize there are a lot of new investors in general and in Ampex, in particular. Somebody told me that the Ampex shareholder count went from 1600 to 30,000 in the last 12 months. A couple thoughts about that: 1. It is impressive evidence of the power of the Internet for communicating, digesting and acting on ideas. 2. It means a lot of Ampex investors, I fear, don't know why they own it other than it was going up and now its going down.
To the panicked: decide where you are going with your investing. Momentum investing or technical looks easy in theory, but very difficult in practice. Assess your strengths and weaknesses. Can you be a momentum investor. Do you have real time quotes? Are you aware of when insider stock becomes free of a lockup? Do you know whether a company is pursuing a private placement which will depress the price as the hedge managers dump present
positions in order to buy cheap stock on the private placement? Are you aware of an impending arbitrage because of a convertible offering being filed?
I would submit that you cannot compete over a sustained period of time trading stocks in and out. I'm sorry but there are too many hot money managers out there with better resources of contacts, research and discipline.
Where you have the edge is accumulating companies with tremendous long term prospects and following them very closely. The day to day trading can be a pain. Bear Stearns was the big seller this week and looks like they cleaned up today. Who knows why? But the fundamentals are still there. Royalties provide cash flow and allow for R and D at a consistent, disciplined rate. Storage and instrumentation and DCT are growing businesses. The
digital world is coming Ampex's way. Keepered media has wonderful potential. The magnetic recording world has reached the point where it will take inspired, sophisticated and creative research to continue the gains in density and speed. I like ampex's chances. |
