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

To: Robert Douglas who wrote (249)	12/2/1998 1:39:00 PM
From: Gottfried	Read Replies (1) \| Respond to of 1989

Robert, I hope your wife doesn't read this thread: you'll be in a heap of trouble.<g> Other industries that seem unable to control their capacity glut are DRAMs and crude oil producers. Automobile makers have the potential to produce a glut, but I haven't seen 20% new car price reductions yet. I think it's too late to differentiate hard DDs. The only company who has done that successfully is Iomega in the high capacity floppy area. Gottfried

To: Robert Douglas who wrote (249)	12/2/1998 1:59:00 PM
From: William Epstein	Read Replies (1) \| Respond to of 1989

Robert Douglas; You ask the right questions and I not not the expert that Stitch is about this industry but it seems to me that some of Seagate's capacity problems also stem from its vertical integration model which makes just shutting an assembly plant down a very difficult and complicated problem because there is a supply pipeline involved with all the components of its sub pipelines too. Also, their time to market is slower because of vertical integration. Every detail of supply must be worked out before production can be ramped up to profitable levels. This makes differentiation more difficult through new product introductions. I was once an automotive designer and at that time the auto companies took 10 years to develop a new car from concept through production. Iaccoca/ Chyrsler lowered it to 2-3 yrs and showed the industry it could be done with the introduction of a 2 billion dollar design center and their profits shot up. Also when the time to market is too long, companies often reject good product ideas because they are afraid that by the time they get into production the product will be outmoded or it is just too expensive to develop for the volume they think they can sell. This too, makes differentiation difficult and causes losses of profits that should have been there. I can't answer for the other manufacturers as I know very little about their models. When you are operating at about 85% of capacity and have a very long production run vertical integration make a lot of sense. It is probably the most profitable way to operate. However, if you have a quick changing production mix because the market is constantly changing then vertical integration can be a dead weight around your neck. Outsourcing becomes critical. This is GM's big problem and the source of their troubles with their unions. PHOTOMAN

To: Robert Douglas who wrote (249)	12/2/1998 2:52:00 PM
From: Kevin Linder	Respond to of 1989

Robert; You pose some good questions. I wish I had some good answers. It almost seems like the overcapacity problem is one where managements can't seem to coexist. Kind of like Rodney Kings statement -- "Can't we all just get along." I think youridea of "branding" or trying to distinguish between brands and companies has merit. The Exxon/Mobil merger is providing a lot of good study material on how successful companies are in managing to do so with consumers. There is way to much material out there to raise this as a discussion point. I do hope the upward trend continues with storage technology stocks. I think a big problem in the HDD industry has been that an attitude of Dog-eat-dog exists and the executives have not changed these attitudes at all. I think your point and questions are very good though and I look forward to seeing other peoples input and thoughts. Kevin Linder

To: Robert Douglas who wrote (249)	12/2/1998 8:23:00 PM
From: Stitch	Read Replies (1) \| Respond to of 1989

Robert, <<Why should overcapacity matter? Other industries manage to remain profitable with chronic excess capacity. >> Robert, the above comment discombobulates me. To me overcapacity is propositionally simple. Supply/demand seems to me a well understood reciprocal. When one exceeds another prices, are affected proportionally. N'est Paux? I would welcome some examples to the contrary. But you go on to ask some interesting questions about the drive industry. e.g. <<Can the HDD industry learn to profitably coexist?>> Certainly not in its current state of too many competitors. The reason, I believe, is relatively simple. It lies in the nature of volume and, inextricably, the demand behind it. Volume and its corrollary, yields, are at the very heart of the financial model that is the current paradigm of a competive disk drive company. Why is it so? Because, when truly considered, there really is very little differentiation in the products. And yet, there is also little in the way of an alternative to disk drives as the primary data storage mechanism of choice. So, the market is huge and will grow. The "prize" (market share) is staggering. While there is room for differentiation through ancilliary products and services it is limited. Branding as a strategy can be likened to the "Intel Inside" campaign. None of it matters if you don't have high volume, high yield processes. (As Lawrence has pointed out time and again there is another "sine qua non": time-to-market development.) So I submit this isn't like the America steel industry of the 70s, where busting up into boutiques of niche products salvaged more then one company. This market just will not work that way IMO. Nor is it simply a case of waxing and waning assembly lines to match demand. You asked where the overcapcity was. It is virtually in all aspects of the supply chain. You may want to read the two papers I mention and link below. I think they go a long way to supplying a macro view of the forces at work in the drive industry. One final note: I think your wife should stick to the waffles. If for no other reason then to assure your mutual happiness. I think being married to a DD executive would be sheer hell. Only slightly less then actually being one. Best, Stitch Global Strategy and Population Level Learning in the Hard Disk Drive Industry Paper No. 97-05, October 1997 David McKendrick, Allen Hicken Sustaining Competitive Advantage in Global Industries: Technological Change and Foreign Assembly in the Hard Disk Drive Industry Paper No. 97-06, November 1997 David McKendrick www-irps.ucsd.edu