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Seagate (STX -3.6%) +2.5% AH after the company discloses David Einhorn has increased his stake...
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Monday, June 11, 2012, 6:26 PM ETSeagate (STX -3.6%) +2.5% AH after the company discloses David Einhorn has increased his stake to 23M shares, or about 5.4% of the company. According to his firm's latest 13-F, Einhorn's stake stood at 14.5M shares at the end of Q1. Seagate's low valuation (it trades at just 2.4x estimated FY13 EPS) likely has something to do with Einhorn's interest.
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This news story has 9 comments:
The article does not explain why einhorn's interest is a negative.
I think in both cases the market is wrong. What winchester drives lose on notebook and desktops sales (and I don't think it will be too much.) will be replaced by more storage in data centres. Also WDC and STX are now going in fairly hard on enterprise SSD storage.
Second, if the HGST inventory were a big issue, I would expect to be seeing heavy discounting in the retail channel for hard drives. I'm seeing a bit on old tech drives (3Gbps SATA) but am definitely not seeing it on the 6Gbps SATA III drives. Quite the opposite, actually.
1) One of the bigger NAND Flash manufacturers is Micron (MU) and their gross margin is about 11%.
2) Sandisk on the other hand make flash, but also make consumer and enterprise SSD drives, and their gross margin is about 41%. Whether they are getting that on SSD drives is another question, of course. They also make high-end flash cards for cameras, etc. and they would have very good margins I expect. They certainly have mojo!
3) Intel got out of their JV on NAND FLASH with Micron, because, according to a friend of mine in the PC component biz, The flash business was dragging down their margins.
WDC and STX have gross margins of 26% and 28% respectively, which are respectible for component makers.
So from this admittedly unscientfic analysis, the underlying flash storage manufacturers have very low margins and the makers of the systems, especially high-end stuff make significantly better margins. I get the feeling that right now the margins on enterprise SSD are pretty good, but may not stay that way because there are now more players than there used to be. I did see a press release saying that EMC were using WDC's SSD drives in one at least of its new flash-based storage products.
EMC have a 61% gross margin, since they are at the top of the tree, but of course their Sales and Marketing costs would be much higher, so their operating margin is still only 17% (STX and WDC 16% and 11% respectively).
My *suspicion* is that for most vendors, SSD drives are a pretty low-margin business which is why STX and WDC have not gotten into it to now. It's not as if it is all that high-tech if you just buy the controllers and flash like everybody except Sandisk and Toshiba. (Samsung make flash, but I've not seen a Samsung SSD drive.) STX and WDC don't really have any great advantage in this space, I would have thought. If they can make hybrid drives popular, it will be a different story.