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Technology Stocks : DSS: DLT finally open for trading -- Ignore unavailable to you. Want to Upgrade?

To: Sam who wrote (87)	10/11/1999 10:51:00 AM
From: Robert Douglas	Respond to of 488

From Bear Stearns: <<<Key Points DSS, the tape storage unit of Quantum Corp. pre-announced late on Friday (10/8/99) that the company will meet expectations for the current September (fiscal 2QOO) but that the December quarter (fiscal 3QOO) could come in significantly below expectations owing to (1) Y2k, (2) anticipated reduced orders from a major OEM vendor (we're guessing Compaq), and (3) the adjustment to JIT (just-in-time) inventory. As a result, we are reducing our FY 00 estimate to $1.35 from $1.50 and our FY 01 estimate to $1.55 from $1.80. As we have said before, we are a little more anxious given that the company's record of missing quarters and these estimates could be susceptible to future revisions. Despite the inconsistency in DSSs financial performance, we are maintaining our Attractive rating on DSS owing to our belief that the company is well-positioned with (1) the growth of the data from Internet activities such as e-commerce, e-mail, and richer multimedia that needs to be backed-up and protected, (2) DSS's leading market position with its DLT products with over 80% midrange server market share, (3) our anticipation of a strong product upgrade cycle with SuperDLT. We are lowering our price target for DSS to $23-$25 (down from our previous $27-$30 range). We reach our $23-$25 target by assigning a multiple of 15x-16x against our fiscal 2001 (ending March) estimate of $1.55. Although this multiple may be at a discount to that of its peers, we are taking a conservative stance given the company's recent earnings shortfalls and the performance issues associated with tracking stocks. Further Comments on the Shortfall. Quantum DSS management attributed the shortfall for the December quarter to the following reasons -- (1) Y2k, (2) anticipated reduced orders from a major OEM vendor (we're guessing Compaq), and (3) the adjustment to JIT (just-in-time) inventory. While we find most of the reasons credible, we find the Y2k reason tougher to believe. We have noticed that the stronger players have been able to work around their Y2k issues as they have adjusted their business models to sell to companies and segments that are less prone to a slowdown owing to Y2k including (1) Internet companies that don't have any legacy issues such as the eBay's, AOL's, and Yahoo's of the world and (2) dot.com applications and infrastructure such a e-commerce that are currently "suffering" from blistering growth and need as much web horsepower as possible. Going forward, we would like to see Quantum DSS management be able to take better advantage of the exploding dot.com infrastructure spending.>>>