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

To: Stitch who wrote (5322)	1/24/1999 1:18:00 AM
From: Frodo Baxter	Read Replies (2) \| Respond to of 9256

Indicators can be leading, coincident, or lagging. Leading is what you want, the other two are useless (i.e. they tell you what you already know). The reason turns is coincident is this. If a quarter's revenues go up Q/Q, the inventory levels go down. And vice versa. Brownie points if you can tell me why. For the six quarters before the last, SEG's revenue was in free-fall. Despite this, inventories started to go down (turns going up) anyway. This is because of a) channel stuffing and b) reduced build plans as they came out of denial. So maybe I should say inventory turns are usually coincident. In any case, a Q/Q increase in turns coincident with a Q/Q increase in revenue is nothing to get excited about.

To: Stitch who wrote (5322)	1/24/1999 12:29:00 PM
From: Hungry Investor	Respond to of 9256

Stitch, I think that Lawerence might be right to a degree. Some items that might screw up his analysis: 1. Declining price of producing drives - if the mix still has some older unreserved inventories for components can screw up this analysis - or if they have unprofitable drives and profitable ones and the mix changes significantly which happens a lot as you move to the next generation. 2. Warranty costs - these are a cost of sales and increases or decreases in these reserves (due to reasonable issues or not) can significantly changes the numbers - for example I hope Lawerence was taking out the bloodbath warranty reserve that QNTM sucked up in CY Q3 which was $70 million. If that was in any way bogus, would it reduce current quarter COGS and decrease turns (I'm not saying that it was in any way, just commentary on the mechanics) as well as screw up any calculation for CYQ3. 3. Other items such as accelerated depreciation for a line that will be shorter lived can also screw it up. There are really a multitude of items - anything that goes into GOGS in a month/quarter/year can affect this significantly. Also highly usbjective valuation issues with inventory and warranty reserves can make this an almost impossible task. The companies might tell you differently - that the turns numbers that they calculate are comparable (especially when the news is positive - they are not only trying to look good for the public, but would like to keep their jobs).... but I would caution that you should read the 10K's and 10Q's very carefully for what drove increases and decreases in COGS (and always be weary if the only answer is a sales mix thing...very often this is the case.. but I think companies could go a little farther in disclosing major components of their cogs - we talk all day about revenue drivers.....) My 2.5 cents Scott.