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Technology Stocks : Western Digital (WDC) -- Ignore unavailable to you. Want to Upgrade?

To: Return to Sender who wrote (10694)	7/29/2003 3:08:33 PM
From: Sam Citron	Read Replies (2) \| Respond to of 11057

My view is simply that the acquisition of a failed supplier provided a reasonable opportunity for some longs to take profits on a stock that had traded at $3 just over a year ago. Volume on the sell-off, at 17.5 million, was big, but not by a significant margin. Two months ago, the stock had a 15 million share trading day. I believe that stocks react (and sometimes over-react) to news and that charts are best viewed when they are annotated by noteworthy news events. I am always amazed that no commercial chart services that I am aware of do this. Significant news events change the ST trend, so I do not find the chart to have great predictive power in the immediate aftermath of a significant fundamental change like a basic change in a company's business model. You are betting that the market has over-reacted to the news and will soon make a 1/3 reversal. I think it is too soon to make the determination that 9.50 is "strong support". It is going to be at least a month before investors will get their next update about the acquisition, probably in the form of another cc. Between now and then, I think it is just as likely that the stock could follow the recent downward momentum and hit $9 as it could rise to the $10.80 level. In fact, I would not be too surprised if both price points were hit over the next month or two. For this acquisition to be successful, WDC will have to inject a significant amount of capital into Read-Rite beyond the $95.4 million initial price tag. Capex at RDRT was running at about $80 million a year until they began experiencing financial difficulties. They will need to make a significant investment if they are to stay competitive with Seagate, TDK and Alps. Vertical integration may make sense for them in the long run, but it is not a slam dunk. What is clear is that there will be some dilution of earnings until at least Sept04 quarter. Just how significant it is, and whether it can become accretive soon thereafter is what will really determine the stock price. In the meantime, it will probably fluctuate with the market. Sam