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

To: Pierre-X who wrote (7966)	12/3/1997 4:01:00 PM
From: Jimmy Chan	Respond to of 11057

every insightful... i don't have time to reply to you now.. will try tonite.

To: Pierre-X who wrote (7966)	12/3/1997 4:45:00 PM
From: still learning	Read Replies (1) \| Respond to of 11057

I'm a long term bull, short term I also think storage is bearish. Re 1. Big 3 (actually 4 if you count IBM) This theory has been seriously tested lately with fringe players piercing the price bubble (Maxtor,Samsung). Yet I think you have it wrong. Not one among SEG/QNTM/WD suggested an oligopoly, only that limited players would be more likely to exhibit restraint. We are seeing restraint (witness WD cutbacks in capacity, similar statements from QNTM, and some level of restaint from SEG -- although they are pSSed off about losing market share and are in no mood to help secure the pricing structure. What we can say is that overcapcity issues may be solved more quickly (depending on whether Samsun and Maxtor continue trying to buy market share at any price. We will also see whether OEMs really* want the c(arguably) cheaper/lower quality drives from thes other manufacturers, or a simply trying to use them as a lever to ensure low pricing from the real suppliers. Right now is not IMHO a good test, since it will take until next Spring or early 98 to see how the Big 3 respond. I believe some continued rise in demand will help clear the inventory and there will be some capacity restraint, through not at the same level of an oligopoly. You can judge for yourself how to best classify this phenomenon. 2. Revenue Growth. -- No argument, except that I buy the QNTM notion that we should view the storage industry more broadly. In other words: don'd discount their success in tape storage simply because it's a different media. View it the same way you would any other diversification effor -- from low end to high-end. No one is "disregarding" losses at high end server market. So it appears the issue on growth/margins comes down to this: did you bet on the right sectors. Remember, QNTM was also losing money in portables and exited removables soime time back -- for better or worse. Right now it isd for better (see WDC exiting 3" mkt.) 3. I doubt we will approach stock price of zero, and so do you. The real question is whether these disounted levels adequately reflect the uncertanty and real problemse these companies now face. I think WD still has a way to go down. I think SEG is being accforded the "natural" premium allowed to the indsutry leader -- tho they may lose that status verrrry soon. I think QNTM is being unfairly punished. Relating this back to our diversification discussion, I think it is more dangerous right now to "buy the sector" than it is to buy a stock (QNTM in my case). I have currently un-diversified my DD holdings by selling stocks like JBIL, APM, WD, and SEG, all of which gave me varying levels of return, but ultimately turned sour all at the same time. I did not choose to bail on QNTM because I feel they have the best prospects at this price. Yes, things may get worse. Yes, they may miss their #s. But as a value play and with a 2-4 year horizon, I do not feel we have witnessed a sea change in this industry. I am open to convincing if SEA gets wors or if I hear a scenario where QNTM gets hurt worse than the news on the table -- AND I'D BE VERY INTERESTED IN HEARING ANY PLAUSIBLE SUCH SCENARIOS FROM ANYONE ON THIS THREAD (not shouting, just pleading).

To: Pierre-X who wrote (7966)	12/3/1997 6:24:00 PM
From: William T. Katz	Read Replies (1) \| Respond to of 11057

Obviously the DD makers are under margin pressure, however a case can be made that WDC is going to feel it the worst due to their (1) low-end mix, (2) TFI vs MR orientation, and (3) lack of alternative revenue streams. Quite often, Wall Street uses a broad brush in painting sectors. Try as they might, QNTM cannot really get their DLT business fairly valued, nor can SEG get their software business counted. In the case of QNTM, several valuation methods will allow you to surmise that their disk drive business is currently trading at $0 per share and even with that, their DLT business is trading at a discount with $24/share. Obviously there is a margin squeeze, but QNTM is also more located at the top-end of the drive market and is currently implementing steps to stop the enterprise-level red ink through restructuring (using a common architecture). Add to this QNTM's investment in TeraStor and their NFR license as well as the closet business in sold-state drives which might get more consideration with the Network Computer moves. So in general, yes ... disk drive manufacturing is in a bad part of the cycle. But as usual, the stock prices have gone to one end of the extreme and totally discounted reasonable valuations. One simple statistic: QNTM will probably get over 50% of their profits from DLT which is growing (conservatively) at 50% annually (and was growing 100% from last year). So when people talk about the "disk drive stocks", I think they are missing the trees for the forest. I really missed the boat in shorting WDC as a hedge on my QNTM shares. I think this is because I really like WDC ... I made a lot of money on the run-up to $50 and I think their management is top-rate. That said, though, I think WDC is in a totally different situation from QNTM and even SEG. They are not nearly as diversified and when the estimates start bringing FY earnings to $0.30, that means they will likely have loses as they transition quickly to MR. Given that, why pay just $5 less for WDC than QNTM when the latter has a real cash cow? I expect to see a divergence of WDC stock price from QNTM and even SEG. I'm not saying WDC will still drop in price, but I think the upside is limited because their revenue stream is under attack more than QNTM or SEG. -Bill