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Technology Stocks : Seagate Technology -- Ignore unavailable to you. Want to Upgrade?

To: uu who wrote (4371)	12/23/1997 5:09:00 PM
From: Gus	Read Replies (2) \| Respond to of 7841

"...Someone with deep pockets must like SEG at these levels." Someone like SEG which started this quarter with about $1.7 billion in cash, about $700 million in long-term debt and *between $550-600 million in share buyback authority in place.* Just as a math exercise, liquifying 100% of SEG Software, their 22% stake in Sandisk and their 1/3 share of Dragon Software gives them another $1.5 to $2.5 billion in potential reserves. Reducing their capital budget further (initially $1.0 billion for fiscal 1998 but reduced to $900 million last quarter with the possiblity of more reductions since 90% of their operations are in Southeast Asia where the average devaluation is around 35-40%) could sqeeze out another $100 million or so. At around $20/share, $550-600 million buys back a lot of shares -- $550 M/$20 = 27.5 M or about 11% of total outstanding of about 245 M shares. At around $11/share, well, you do the numbers.... I'm convinced that SEG is hunkering down for a long, protracted down cycle primarily because they have to rejigger their supply and demand equation by reducing capacity (not just cutting back on production) AND by increasing their shipping volumes. In terms of capacity, the closure of the Ireland factory meant the loss of about 1.6-2.0 million disk drive capacity a year, or less than 5% of SEG's total capacity. Is that enough? I dunno, but you know SEG is really reducing capacity when it goes beyond shutting its European factories with European work rules and starts shutting down some of its facilities in Southeast Asia where 90% of its factories are. The labor component there alone just got a 35-40% haircut. Otherwise, you would have to believe that SEG is going after volume, big time. In terms of shipping volumes, I have seen estimates by some people who believe that SEG has to capture 30-35% of the desktop to make up for the realignment of its high end franchise in market share and margin terms. I agree with these guys. There is no way SEG can even approach 30% share of the desktop without stepping over some dead bodies. The disk drive industry is Dodge City until the big guy finds equilibrium. Save your ammo.