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

To: Sam who wrote (7834)	11/24/1997 7:10:00 PM
From: Brian Lempel	Read Replies (1) \| Respond to of 11057

Sam, SEG is the weakest because they are the least efficient. They are also losing market share. Certainly they won't go away overnight. Samsung's bankruptcy would be a blessing. If they add capacity, it could be deadly for the industry! Brian

To: Sam who wrote (7834)	11/24/1997 7:36:00 PM
From: Pierre-X	Read Replies (1) \| Respond to of 11057

Re: SEG weakness Allow me to clarify my comments about SEG. I don't think their position is weak from an absolute standpoint. I believe their position is weak RELATIVE to the other "Big 4" drive makers. They are in no immediate danger of going under. None of the "Big 4" are. First thing to understand is that fixed costs are a high proportion of the average unit cost. Once the factories are built and equipped, it doesnt cost much to produce the next disk drive. In the short run a producer will build and sell drives below the average unit cost as long as he can cover expenses. 1. WDC -- WDC has a strong position because they are not vertically integrated, and concurrently lower infrastructure risks. They have the flexibility to select the supplier(s) that best fit their needs at any given time. Imagine if APM was a division of WDC -- ugh! 2. QNTM -- isn't doing well on the DD side but RAKING IT IN with their DLT business. 3. IBM SSD -- Large captive market for their own product. Able and willing to sustain losses to grow business. 4. SEG -- very vertically integrated. Underwent major expansion in C97, building up enormous fixed costs in anticipation of brisk demand. Well, the demand is there but other suppliers (IBM, WDC, QNTM) have crashed the party and killed margins. Return on their investment will correspondingly go to zero or below. Only thing they can do is kill all outsourced supply. Reference their massive cutbacks in purchases of KMAG product. This is a study in why vertical integration is going out of style in the modern economy. Full discussion of that is outside the scope of this post. Because of the high fixed cost proportion I expect SEG will continue to output at near full capacity, and remain EBITDA positive. But the declining margins will cause red ink on the bottom line, due to D&A from the capital investments. Since D&A is not a current use of cash the survivability of the company won't be impacted by several quarters of red ink. Wut dew y'all think? PX