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To: Z Analyzer who wrote (1252)	5/13/1999 12:02:00 PM
From: Marconi	Respond to of 1487

Hello Z Analyzer: (warning--a longer commentary) I believe we agree mostly. HTCH was battered down at 12-13 in a 'bet your company' mode--huge cash consumption and losses; a major development for them long overdue (TSA). By the latest company statement TSA has turned the corner to being a contributor. It is too early to tell how solid that situation is. We will see if HTI management will comment in the next few quarters that due to slack demand they had to discount the price of current TSA products. I would like to see a couple of solid quarters pointing to TSA out of the next 3-5 quarters of activity to gain perspective on that concern. Discounting due to demand has been a recurring theme from HTI management. HTI has a history of implying after the next round of development and investment there will be a torrent of cash generated by operations. Since the company went public they continue to be a borrower on average. I think it is partly industry, partly management. Neither are in terrific sync predictably. HTI has an incredibly sensitive reaction mechanism for a manufacturer. That however is not the same as knowing your customers and guiding them successfully into robust areas of the firm's production capabilities. Hence the consistent appearance of heavy expenditures and the uncertainty of payoff, as reflected in the preference for labor intensity both in production and in tooling, to adapt to changes in business, rather than automation at high volumes. Ten and more years ago automation was talked about, but at the time production employees were deemed more flexible than capital equipment. The business remains heavily tooling intensive. I would like to see tooling overhead, support overhead, and labor costs demonstrably falling due to learning curves in the core business. HTI management has not shown that detail. I think transition in that area with TSA would be much welcomed by the investment community and now is the time for demonstrable progress in that area and reporting it. IMO that is where the higher and more enduring margins will come for their business. A stock buy back?? My instant reaction is never. Ditto dividends. The company needs the cushion to survive, not speculate in their own securities. They have done reasonably well at selling securities high in recent rounds of financing. I still wish I had been able to buy the pre-TSA convertible--it smacked of a honey of a deal, especially if the company did not go out of business. The company is habituated to a style of business that includes generous dollops of cash to 'fuel expansion'. On contrary I would argue, cherry pick the market as a vaunted leader and leave the inferior margins to the secondary competitors, and fuel growth with those premium margins. Market share has oddly remained around 70% for too many years. It smacks of a peg with the swing factors being over expending to maintain 'share' and cutting margins to maintain 'share'. Wearing the management consultant hat, I would advise loosening the peg and improving the margins by taking choicest venues of product application. If HTI knows the core business so well that should be a nice doable for them. In the long run it is the soundest way to whittle away the competition. HTI is not there yet and that remains reflected in HTCH pricing. I believe all it would take is one visionary executive--probably an outsider--with superb capabilities in business development. I thought the infusion to the Board of Directors in recent years would have done this. But I suspect the board is more reactive than visionary--at least so far. I keep my hopes that there will be a significant change here. Such a change would change my views from HTCH being a volatile and discounted trading stock to more of the lines of buy and hold for the long term and let the secular growth in the industry take care of share appreciation. I do not believe TSA is 'the clear winner' in wireless suspensions. My view remains that TSA is a stop gap, and largely out of necessity. I agree mostly with the thought if HTI did not do TSA then someone else would. Doing and doing well are two different things. There are costly aspects to TSA that do not add value but add processing complexity to TSA. That is reflected in the excuses HTI management has been making for years about why TSA was not performing. TSA pricing may be in alignment now to cover over that blemish, but the fundamental cost of that complexity is exactly why TSA is not THE solution. Momentum and inertia for the short haul are why TSA is THE solution. These are not the substance of durable business qualities. I think HTI management would do well to put themselves out of the current TSA business with a better balance of design and materials-build a better bridge. The electrical requirements and the mechanical requirements of the TSA design are independent parameters for performance. Their compositing together fully throughout production of TSA assemblies has been an acknowledged problem for HTI. If HTI were to decouple the design on these issues, and build more robust TSA assemblies, then I would take more stock in both HTCH and the durability of that generation of TSA's. Maybe this direction will be taken. Maybe not. INVX has some of the pieces to do so, but apparently they lack the vision and possibly a key component to make it happen. Simply put, I strongly suspect if HTI would relax the proud view of TSA traces must run as a continuous composite metallization from tip to base, what they suffer in yields through multiple etching processes and tweaks could be relaxed and made up easily with micro interconnects. That is one approach that comes to mind to decouple electrical requirements from mechanical requirements, yet produce flexibility to define both qualities better for performance. At some point there will be smarts on the suspension or possibly starting very close to it. Some 'cracks' along the way down the traces on the TSA assembly now would allow people to experiment by trial and error if they know no other way to arrive at a healthier balance in the functioning of these assemblies. If I were to play management consultant to them, I suppose suggesting this be done in an experimental development program only to give the engineers and designers immediate flexibility on this development-only platform would be one way to 'contaminate' the organization with the virtues of this approach. Engineers have a proclivity to gravitate towards what they have seen working. A small scale in-house model, especially if you are the market leader, is certainly a prudent avenue to stir the waters. This approach is typical of industry heavies. I am not privy to the inner workings of HTI. I believe if I can think of it, many others can, too, and those in the business depending on it had better thought of it and incorporated it into their ongoing thinking to adapt to the future. I think you are one of the folks on this thread that follows the programs and demand, margins, etc. with a model. What are you seeing now specifically? I am not looking for 'this is a clear winner' or this baby is 'going to the moon'. I look for something I can sink my teeth into different from my generalist notion of investing--which in sum is if it were my business what would I be doing? and if it is not so, what difference does that make in stock price. I agree with the comments about HTCH has lost massive amounts of money in the past. I would like to see symmetry here and a countervailing having made massive amounts of money. I think it is doable. I don't know how up to that score HTI management is. I do not expect immediate favorable resolution of that desire without significant changes in management, financing, and development. Meanwhile, for the foreseeable years ahead, I think HTCH remains predictably a trading vehicle, not a buy and hold investment. Best regards, m

To: Z Analyzer who wrote (1252)	5/13/1999 3:47:00 PM
From: Lucinos	Respond to of 1487

<<The difference in HTCH between last summer and now is the difference between day and night.>> I agree with you mostly. However, the difference in HTCH between last summer and now is not too noticeable from the market's point of view. I do not expect that HTCH will move up significantly this year due to the fact that the number of heads used in a HDD is much less than that in a HDD 3 or 5 years ago (and so is the number of the suspension arms in a single HDD). The future of HTCH is totally relying on the new usages of HDD developed for the multimedia and internet applications. Without new applications being accepted by the end users, there will not be any chance for a sudden ramp up of HDD units consumed in this year. So, I would like to guess that the future for HTCH is bright, but the good time for HTCH is not going to happen in the next 6 to 12 month period. Lucinos