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 : Disk Drive Sector Discussion Forum -- Ignore unavailable to you. Want to Upgrade?

To: Z Analyzer who wrote (5134)	12/31/1998 5:01:00 PM
From: Gus	Read Replies (1) \| Respond to of 9256

Z, As the folks at Microsoft like to taunt the folks at Intel every other time they get on each other's nerves.... There's a practical cap on the market cap of a company in an industry that hasn't beaten the cyclical rap. Wouldn't you rather be investing in a company with an impractical cap..... As interesting as HTCH's prospects may be, there is just no way that I see HTCH breaking from the range-bound disk drive pack and doubling in the year ahead. Just by juxtaposing Stitch's datapoint about Fujitsu's volume strategy -- 9% to 20% in 1999??? -- with the WDC capacity situation -- operating at 45-50% of capacity (44 or 49 million annual drive capacity) as of the September quarter -- with the long-pending QNTM/MKE decision to add or not to add capacity -- per 10Ks this decision was deferred earlier this year -- you know that this industry will have to go after each other again with meaner intentions. Like crabs in a bucket, every time one one crab tries to crawl out of the bucket, the others will invariably claw and drag that adventurous crab down with the rest. Wouldn't you rather be investing in an impractical cap like EMC?<g> Seriously, EMC is one of the very few companies in storage, much less the general market, that will post accelerating revenues AND expanding margins in 1999. Here's why those numbers are of superb quality. Much of the data (60-90%) in corporate America still resides on mainframe storage. .....In most large organizations, the majority of business-critical data is located on mainframe systems. More than 75% of internal data accessed by corporate PC users, and more than 60% of all data available via the Web originates in mainframe databases... westworldproductions.com That priceless data is currently making its way down to the client/servers and of course, the much-hyped internet via tracks that give enterprise storage devices a network of their own. The decision to move to SANs (and the separation of the storage upgrade cycle from the other IT cycles) is part of multi-year processor and networking upgrade cycles that have been in high-gear for a while. Per Tom LaHive at Dataquest, enterprise storage is currently growing at this rate -- 1:2:14. That is to say, one mainframe terabyte is sold for every two UNIX terabytes for every 14 NT terabytes. The common wisdom is that future growth will happen within the framework of storage networks because these storage networks provide the flexiblity that allow any company to use the internet to improve the way information is delivered to its suppliers (extranets), employees (intranets) and customers (WEB). Because EMC is the dominant player in mainframe storage -- about 65% of the market -- it has the inside track on migrating most of the data in corporate America to client/servers and the internet. And it is doing so with a combination of hardware, software and services. Software (with cushy 80-90% gross margins), in particular, has a penetration rate of ONLY about 25% of EMC's installed base of 14,000 for Symmetrix. That's an expanding installed base, by the way. And EMC is spending $800 million in software development over the next three years to further widen its already considerable lead over IBM, Compaq, Sun and a field of 150 or so players. EMC has been getting some flack from the storage industry because of its reluctance to be more active in the standards-setting process for Fibre Channel, the enabling technology for SANs. But why should EMC dumb down its technology to standardize FC? It took huge technological risks by using the profits of its lucrative mainframe storage franchise to develop the open systems version of Symmetrix (rolled out in 1995), way ahead of everybody else including IBM. Pooling parts of its technology with the rest of the field would necessarily mean that its competitors get to benefit from EMC's investment in ESCON (mainframe optical interconnect technology) and FC -- see McData's market position; See also the way EMC's system design has benefited Seagate's FC drive component design over the years and the way SEG, until recently, was the only volume supplier of FC drives. Stock price is determined by supply and demand. The demand for a stock like EMC will continue to be high in 1999 because not only will the quality of its earnings be extremely high but *fewer and fewer companies* in 1999 will show that same quality. Earnings quality will be extemely high because the lava-like move of corporate data from mainframes to client/servers and the internet is recession-proof, as verified by company survey after independent survey after company survey. The demand for a cyclical stock like HTCH, or any disk drive stock for that matter, will ebb and flow creating trading ranges or practical caps. Lastly, buying selected dips of those impractical caps can be quite lucrative because you can go after them with some size. Not unlike the dips of these cyclicals or practical caps that require intestinal fortitude. Higher risk, smaller bets, limited upside. Somebody shoot me if you see me buy one of these practical caps in 1999.<g> And that's a wrap. Have a prosperous year of the rabbit, Z, all. Gus