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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Michael Burry who wrote (2693)	12/8/1997 5:55:00 PM
From: Stewart Whitman	Read Replies (1) \| Respond to of 78593

Michael, Let me list my four concerns about QNTM/DD makers: 1. In my opinion, the margins on the DLT drives could eventually be under pressure. Here is some pricing information on Seagate's AIT tape drive (a Sony design): uvision.com And here's the price of a comparable DLT tape drive from Quantum: uvision.com As I said before, there are good/bad points for each type of drive, but the Quantum is priced considerably higher, and after some research, I believe the AIT drive to be technically a better choice for most enterprises. I will take back what I said previously about the DLT drives perhaps not being able to grow to higher capacities. I learned that this is not true. That said, organizations already using DLT will not simply abandon the technology (for backward-compatability reasons). And it will also take some time before vendors to make tape libraries incorporating AIT drives and for AIT to become popular. But, I still have to question the ability to sustain the high margins on DLT. 2. I see the possiblity that the drive makers have been doing some channel stuffing. Perhaps not Quantum or Seagate, but I am almost certain that WDC has done it (admittedly a rough estimate: 25% year-over-year revenue growth in recent quarter, and an empirically-derived 20% drop in entry-level drive prices would suggest over 50% unit growth - which seems high). My question is, do any of these companies have policies about inventory levels, etc.? Or do any of them reveal information about unit sales? Or can you tell this information from their reports? If this was so, it would almost certainly have a short-term (6 month). But it could also have a medium-term (6 month - 2 year) effect. For example, consumers would probably no longer willing to pay higher prices for drives. 3. What I feel is a poor longer term (e.g. 2-5 year) outlook, which we have discussed previously. 4. Finally, I don't see the disk drive makers trading at an exceptionally low valuations relative to historical numbers. Compared to their 1994 lows, SEG and QNTM are arguably about 1 1/2 times as expensive (in terms of P/B, P/S) and WDC is about 1 1/4 times. Certainly, they are well off this year's highs, but the businesses are not exceptionally cheap. All in all, I don't question that there is potential for appreciation, but I question the short- and long-term downside. Stew