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Technology Stocks : Seagate Technology - Fundamentals -- Ignore unavailable to you. Want to Upgrade?

To: Sam who wrote (978)	7/8/1999 8:40:00 PM
From: Kevin Linder	Respond to of 1989

Sam; Your response was a very good quick look at the industry and very accurate. I think eventually we will get back to a "Big Three" type of environment. I think you also have to count into your calculations some component shortages that developed and stymied production at various times and made the industry more attractive than it actually was at any one time. I don't think I can agree with you that the industry executives "know" price wars are bad - I think a better description would be a teenager. A teenager "knows" many things are bad - yet still goes ahead and does them any way. The teenager believes that the bad stuff only happens to the other guy and they are impervious to pain and trouble. I think that is the root of many of these price wars - the HDD executives think they can produce the final product in a way that will allow them to profit when the other company wasn't able to do so. I think that SEG will be an eventual winner, but that doesn't mean that I as an investor am comfortable they are waging this war. (A good analogy might be the old Mutual Assured Destruction MAD concept - works good on paper, but what happens if it is tested?) Because these wars are going on it also does not mean that there will be an end - at least until these guys wake up and realize what they are doing. I think SEG's strategy is interesting in one aspect. INTC is pursuing a very similar strategy. The Celeron is designed for the low end (substitute U-4); the Pentium III and the Xeon is designed for the high end (substitute Cheetah). Does this strategy work? Well, some people say it will work until something better comes along... INTC also has been executing very well (high yields on chip manufacturing) while SEG has not been the best at this in the past. I think the best case scenario is that SEG and AMD might have some of the same quality control issues. That brings up the question whether SEG can execute on getting high enough yields. The U-4 and other low cost drives will not use as much component parts as a "regular desk top drive." That may rule out a component shortage ending this price war. The same individual time may be needed to fabricate a low cost drive, but that is not the highest cost of a hard drive. So I guess that leaves the HDD industry in a price war where one or more of the competitors will probably not be able to walk away. But who? And how will it come about? And when? Kevin Linder