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 : QUANTUM -- Ignore unavailable to you. Want to Upgrade?

To: Frodo Baxter who wrote (7394)	2/22/1998 5:25:00 PM
From: Stitch	Respond to of 9124

Lawrence; <<Of course not. But I would buy a basket of HD makers over a basket of the heads and media boys. Amen brother! Uhhh...where do you get these printing presses? P.S. I'll be darned, you did bold line it for me. :) Best, Stitch

To: Frodo Baxter who wrote (7394)	2/26/1998 1:09:00 PM
From: MKL	Read Replies (2) \| Respond to of 9124

That was a very interesting discussion! Here are my 2 cents worth. Historically, Head/Media companies like ReadRite and Komag have had gross margins in the 30% to 40% range. But there has been a shift in disk drive companies moving toward vertical integration. (Seagate now make more than 80% of their own media) Seagate was Komag's (& Stomedia's) biggest customer. Komag and Stomedia put in capacity consistent with industry growth but Seagate pull the rug from under them. The problem with domestic Heads/Media suppliers is that they cannot penetrate the Japanese DD companies, where they are less vertically integrated. Also, with Quantum using MKE for manufacturing it shuts out the US head/media suppliers also. Would I invest in the Heads/Media companies now? No, a year down the road my answer would be yes. Reason is that, in the past heads/media were bottlenecks (supply constraint). The oversupply now is an overreaction to the past. Companies like Seagate probably learned their lesson that Heads/Media capacity are expensive and when underutilized, the high fixed cost is a major drag on their financials. WD is an interesting company. They basically buy everything, so they will have lower margins than the Seagate and Quantum (during good times). But with this structure, I believe WDC would be the first DD company to recover. So, I would buy WD in the short term but not in the long term. As for your venture. If the venture is in DD then you need to adjust your capital. Typically, DD equipment are as follows: I approximate 50% of capital investment is related to testing. This machines are off the shelf equipment (like oscilloscopes)and cost per unit is very low. They are typically depreciated over 7 years with very low risk. Now the other half may be very product specific. It is typically depreciated much faster. Most of these equipment have to be replace (converted) anyway when product changes! Current DD product cycle is less than 2 years. So, equipment breakdown is not a major issue. However, cash flow is the major issue. Idle lines generate no revenue or profit. Cash is needed to continue operation. Of course growing this business is easy. Demonstrate that you are in the high growth industry and that you are the market leader. Your cash flow would increase just maintaining your current market share. You can also make a case that you have an technology leadership that is valued by your customer which would help you gain more market share and have even higher revenue and profit growth rates. Issue more equity to finance the growth. I would sustain from debt because that would place pressure on the management to actually deliver to service the debt. Happy Investing