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

To: Sarmad Y. Hermiz who wrote (7703)	1/5/2000 10:40:00 AM
From: Sam	Respond to of 9256

Sarmad, You have asked your question as to whether or not DD companies can make money at these prices several times. Don't forget what Steve Luzco said at the last CC: it isn't a price war, it's a cost war. So perhaps a better question is, have they shaved costs enough yet? Well, Maxtor said in its last "we're doing better" announcement that "doing better" meant that they were losing less money than they had previously guided analysts to expect. Seagate was the only DD vendor to make a profit last quarter. That will probably be the same this quarter, IMO. It obviously is good that prices are firming at retail, but as Mark has pointed out more than once in the past, his survey doesn't take into account which drives are actually selling the most and can't take into account the largest source of revenue by far for DD companies, prices that OEMs pay. I'm not Stitch, and hope he weighs in on this issue, but that, FWIW, is my guess. Meanwhile, Seagate and HDD are both still good asset plays at these price levels, IMO. s.

To: Sarmad Y. Hermiz who wrote (7703)	1/5/2000 11:32:00 AM
From: Z Analyzer	Read Replies (1) \| Respond to of 9256

<<So is it possible that DD companies will achieve profitability earlier than expected because current prices are holding steady ?>> An easy answer is that if prices hold steady, profits will steadily increase since costs are always dropping. However, the DEC qtr always has the least price erosion and it remains to be seen whether drive prices resume their drop this year which history says is very likely. -Z

To: Sarmad Y. Hermiz who wrote (7703)	1/6/2000 10:08:00 AM
From: Stitch	Read Replies (1) \| Respond to of 9256

Sarmad, <<But are they at a profitable level now ? Or do prices have to increase before the DD companies can make money ?>> Well, for sure, there is no going back in terms of prices. There will be no price increases I am sure. Sam reminded us of the Luczo quote: "This isn't a price war, its a cost war". What he meant , IMO, is that the market is driving these prices. If you aren't there at the market price, you just aren't there at all. That sub 1K PCs are the only real growth segment of the PC market underscores this but at virtually all levels of the market, and for certain in the emerging appliance market, cost (price) is king. In any case, maybe the following bit of news is good for those who have been worrying about the post Christmas blahs this market usually experiences. This is from a just published, 71 page Morgan Stanley report which summarizes a major channel survey they commission which includes disk drives, PCs, and Printers. "Respondents expected SIGNIFICANTLY LESS SEASONALITY IN CQ1 than normal. 50% of US and European channel participants thought sales in CQ1 would be up 10-20% sequentially. This is surprising, because historically PC sales have declined from Q4 to Q1. None of our US and only 3% of our European survey respondents thought that sales would be down Q/Q in CQ1."

To: Sarmad Y. Hermiz who wrote (7703)	1/6/2000 2:22:00 PM
From: Mark Madden	Read Replies (3) \| Respond to of 9256

Here are my opinions of pricing data we have watched over the quarter verses profitability for the drive companies. The weekly pricing reports give us an indication of over-all disk pricing environments; nothing more. They consist of drive samples from discount distributor pricing lists. These prices vary between distributors and certainly vary more when considering EOM prices and prices from the local computer stores. The manufacturers negotiate prices that may be more favorable to larger orders. One variable in determining profitability is the number of drives sold at what particular price. I have no clue. Another variable in the profitability is the number of drives sold. Larger quantities of drives allow the fixed costs to be distributed on a wider base. Therefore, they become a lower cost to each drive. Although there is a relationship between the demand and pricing and there is a relationship between demand and quantity of drives sold, I can not quantify the relationship with pricing reports. As Z and Stitch discussed the biggest variable in profits this quarter are the costs associated with manufacturing drives. This is a moving target. We have heard of reductions in force at some companies and that unit growth is strong. This indicates more machines assembling drives that have high capital costs but eventually lower production costs. Also increases in areal density are reducing component costs. The execution of these programs in the 4th calendar quarter could make a large difference in profitability between the different companies. The pricing report drive samples are averaged in categories such as "drives less than 11gb". These samples are dominated by drives in the 8gb to 10gb range but this may not be where the sales are. The average price means nothing so it is possible that the change in average price is meaningless because it is influenced by particular drives that are not selling. I believe the pricing reports are only helpful if we look at them over time and use them as comparison to other time periods. Overall, I think we saw price stability last quarter that is better than we have seen for several years. The larger capacity drives over 21gb had larger price drops that are about normal for the industry to maintain profitability. The lower capacity drives did better but started low. This is where the action is because the sales in the lower capacities are much higher. Next quarter could be fantastic. IMHO the cost reductions will be greater next quarter as efficiencies improve and the mix of drives sold improves profit margins. The demand predictions Stitch showed us could keep the prices stable. And, the high growth rate of new drive markets could begin to have effect. I can hardly wait for the conference calls to spur my optimism. Regards, Mark