Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

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

To: Carey Thompson who wrote (9169)	11/5/2002 1:36:27 AM
From: Sam Citron	Respond to of 9256

Here's what Barrons said, as a matter of fair use: "The future of many technology stock sectors might be visible today in the rather unlikely form of the disk-drive business. This industry, whose glory years were over by the '90s tech boom, has undergone a radical Darwinian purge of overcapacity and a winnowing of competitors into an oligopoly that's now better equipped to thrive in a tough, commodity-like business. Evidence that disk-drive makers are in stronger shape than many tech sectors can be seen in recently filed plans by Seagate Technology to come public again, two years after a klatch of private firms acquired the company with a modest out-of-pocket investment, thanks to the abundant cash on Seagate's books. It isn't yet determined how Seagate might be valued as it comes out of private hands, but its financial results indicate it is in decent financial shape. Revenue for the fiscal year ended June 30 was flat from a year earlier at $6 billion, while the bottom line swung to a $153 million profit from a $522 million loss. There's no need to wait for the Seagate IPO to play the relative fitness of the disk-drive survivors, though. Western Digital, the smallest of the three players that control some 85% of PC hard drive sales -- Seagate and Maxtor are the others -- offers an attractive bet on a rationalized industry that is gaining some incremental growth from non-PC areas such as video recorder disks. IBM is exiting the business with the sale of its drive division to Hitachi. Marc Klee, co-manager of the John Hancock Technology fund, says, "With only a few producers, rational thinking comes into the marketplace. When you can only get share from a couple of competitors, you can focus more on profitability rather than being more aggressive on price." Western Digital, in fact, could show an unprecedented three straight quarters of flat, rather than falling, average selling prices. Klee notes that price-to-sales valuation measures tend to work best in this cyclical industry. Right now, even after the shares have doubled off their October low to a recent 7, Western Digital's market value-to-sales ratio is at "the lower end of the spectrum." The company has $240 million, or $1.24 a share, in cash, is producing free cash flow and has room to nudge margins higher toward 5%, says Klee. Not lush profitability, perhaps, but much better than the red ink that comes from irrational competition." online.wsj.com * * * * The part about Seagate IPO is important IMO because Goldman and JP Morgan are both large owners of the now private company. The success (read overvaluation) of both MXO and WDC going into the IPO will therefore be critical in establishing a valuation benchmark for their new IPO, hence it will be hard for their analysts to write non-glowing reports on the HDD industry over the next few months. Sam