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Technology Stocks : Disk Drive Sector Discussion Forum -- Ignore unavailable to you. Want to Upgrade?

To: La Traguhs who wrote (6641)	6/19/1999 12:17:00 AM
From: Frodo Baxter	Read Replies (2) \| Respond to of 9256

Yeah baby yeah! Analysts Say Quantum Split Will Mean Big Stock Gains By NICK WINGFIELD THE WALL STREET JOURNAL INTERACTIVE EDITION SAN FRANCISCO -- By most analysts' reckoning, the disk-drive market is a bloodbath -- so what's Prudential Securities Inc. doing upgrading Quantum to "strong buy" from "hold"? The Friday morning stock upgrade by Prudential Securities analysts Kimberly Alexy and Ellen Chae moved the shares of the Milpitas, Calif., storage company up 1 7/8, or 8.5%, to close at 23 7/8 on volume of 7.7 million shares on the Nasdaq Stock Market, up from average daily volume of 2.5 million. Meanwhile, the Nasdaq Composite Index rose 19.29 to 2563.44 and Morgan Stanley's high-tech 35 index added 11.30 to 1109.59. The Dow Jones Internet Index gained 5.40 to 222.21. The upgrade was prompted by a planned split of Quantum's shares into two separately traded tracking stocks -- one for its laggard disk-drive business, the other for its highly profitable tape-drive business. In a research note, the Prudential analysts said the split has a good chance of "unlocking the value" of the tape business, which is currently buried within the larger operations of the company. Quantum's move is a little like those companies that issue tracking stocks for their Internet operations in order to get a piece of the investor craze for anything remotely related to cyberspace. But in Quantum's case, there's a big difference: Its tape operations aren't a money-loser like most Internet businesses. Although the tape unit, which sells drives and tape cartridges used to archive corporate data, makes up less than 30% of total sales, it contributes all of Quantum's profits. Most of Quantum's revenue comes from its money-losing disk-drive group. If the plan works, Quantum will no longer be seen strictly as a disk-drive company, an image that carries serious stigma at the moment. The split "will cause the tracking shares to be considered by a broader group of investors who would not likely invest in a traditional [disk drive] company," the Prudential analysts wrote. The hard-disk-drive business is in the midst of a brutal downturn in business caused by severe price cutting and excess manufacturing capacity. With the exception of Seagate Technology, most of the leading disk-drive manufacturers have weighed in with bad news about their current quarters. Earlier this week, Western Digital said its fiscal fourth-quarter loss would be wider than expected, following a similar announcement by Maxtor. Shares of Maxtor rose 3/32 to 4 27/32 on Nasdaq, while Western Digital rose 3/16 to 6 11/16 on the New York Stock Exchange. Seagate's stock edged up 5/16 to 28 11/16, also on the Big Board. In early June, Quantum, too, said results would be disappointing for its fiscal first quarter. The company said it expected to earn between five cents a share and 15 cents a share, compared with an expected 31 cents a share. First-quarter revenues are expected to be less than the $1.3 billion in sales it reported in the fourth quarter, the company said. In the first quarter of 1998, Quantum had net income of $3 million, or two cents a share, on sales of $1.1 billion. In spite of its warning, Jean W. Orr, an analyst at Nutmeg Securities, said Quantum's stock is benefiting from the fact that it remains profitable even as other disk-drive companies suffer losses. How much value will the separation of Quantum stock -- if it passes shareholder approval -- unlock? The Prudential analysts believe the company's tape business can earn $1.50 a share in fiscal 2000 and, by applying a trading multiple of 20 to the tracking stock for that segment, come up with a $30 share price. The analysts estimate the disk-drive business, on the other hand, is worth about $5 a share. As a result, the analysts set a $35 price target for the stock.