Rob,
My fairly considerable DSS holding is still intact. It is currently my fourth or fifth largest holding in dollar terms, so I don't know if you can expect a completely objective view, but here is my guess/hope for this stock. I hope that they will announce in the upcoming CC that SDLT is on track for a summer volume release. I hope that they also confirm that the backward compatible version will be out in volume by CYQ4, and that it is being tested right now, preferably by interested OEMs, and that anyone buying SDLT over the summer will get upgraded for free or for some nominal sum if they so desire. I hope that they feel that they are in a position to announce final specs, they have so far said things like SDLT will have a native transfer rate of "higher than 10 MB/sec"; I have heard as high as 11.5. Peter Van Cuylenberg in his last CC, was questioned about that, and said that they haven't finalized specs because while they can get faster transfer rates, there is always a tradeoff between speed and durability and error rates. The faster you go, the greater the possibility of error rate and degradation of the tape. They were trying to find the right balance so that they don't compromise the quality of the product. So it is continual experimentation and fine turning, and it is a long term kind of thing, by its very nature. At some point, though, they have to stop and say, OK this is where we stand for this first generation product, we'll stand behind this speed and this quality. I also hope that they announce a new president for DSS who has credability both with investors and in the server world. I don't know who that would be, but this would be an unqualifiedly good thing, we can all agree.
As far as the shift to low end servers is concerned: well, we know that there will be some restructuring costs this Q for transfering production of the 4000 to Asia, and streamlining costs for the 7000 and 8000 (I am not even sure how much the 7000 is being produced anymore, but I guess it probably is). I hope that they envision that the 4000 will have, with this restructuring, a better competitive position in the low end than it had last Q, or else that they revise upward their estimates of mid range server growth. Frankly, 5% mid range growth strikes me as awfully low, unless a lot of Web servers fall in the low end, which maybe they do. Maybe there are a lot of 10 or 20 or 30 gig servers out there that are low end and do their own backup without being backed up in conjunction with a larger network. I know that that is what we did a few years ago on a server that I worked on, but eventually we got tired of doing it (we used a dat drive with Retrospect at night for backup for this 4 gig Mac server), and hooked into a larger network which backed us up with 10 or 12 other servers of varying sizes. I'm not really sure what tape drive did those backups, but I know it wasn't a dat because that would have been too slow and didn't have enough capacity. Both methods have their drawbacks, but both could work and were automatic. But the network backup would be better off with something like a 7000 or 8000, while the individual server backup could do with something much smaller.
I also hope that Snap sales have increased by at least high double digits, and preferably by triple digits. It's coming off of a low base on the one hand, but on the other, there is a lot of confusion out there with a slew of products. If not triple digits this Q, then next or certainly the next, with triple digit revenue growth envisioned for a couple of years.
As far as investing right now--frankly, I would wait for the CC. There is still a reasonable possibility that the stock will go back into the single digits on market weakness, and a very strong possibility that it could go there if SDLT isn't on time, or if there is a nasty surprise with revenues this quarter or next. Since this is still a transition period, that is certainly a possibility. The only possibility that you will miss a nice move up right here if you don't buy now or before the CC is if they announce that SDLT is ahead of schedule, and will be released, say, in June, and they have decided that a transfer rate 11.5 or 12 is doable with quality assurance. Then we will, barring a market collapse, finally break back up above 13, and the people who have been calling MB "Brownie" will begin to change their tune and start to give him the respect that he used to have. If we close at 14 or above, I would guess that 17 or 18 will be the next stop, as that was support for quite awhile. There will probably be a lot of stock for sale between 17 and 20, and only very good earnings news or definite prospects (e.g., SDLT being on time and LTO being delayed yet again) will propel us above that point.
Sam |
