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Sunil Shah
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A fund manager who cut his cloth in Schroders London. He joined Coronation South Africa in 1998, running the Smaller Companies Fund which had the best 5-yr record in the sector during his tenure. In 2005 he left Coronation to pursue his passion in writing (and invest without constraints). He... More
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  • WDC: An end to carnage and a reprieve to the HDD industry 3 comments
    Aug 27, 2010 4:00 AM | about stocks: MRVL, WDC, STX
    Marvell Tech (MRVL) supplies a major SOC (system on chip) to the 3 main players in the HDD industry. The abrupt devastation of their Market Caps (WDC, STX and Hitachi not listed separately) is best summarised from Marvell's CC, which truth be told, was far more illustrative of the recent problem in the June Qtr for HDDs.

    Note this CC happened on Aug 17:


    "As the quarter progressed, negative macroeconomic events starting in Europe began to affect the end market demand for PCs. As a result, the supply chain reacted quickly, cutting build plans and tightening on-hand inventory. Marvell was subjected to these inventory rationalizations and the resulting erosion of demand on us.

    We believe the consumption of the excess inventory is largely behind us now. For example, since the middle of July, we began to experience improved component tools at the hard drive product consignment hubs, providing evidence to us that the excess inventory has worked through the system.

    We think it is important to note that the – to note the speed by which the supply chain has responded to the challenging market dynamics. We see this as a positive long-term trend. We believe the disruption in the hard disk drive supply chain started and ended pretty much within our second fiscal quarter. While there may be questions on the growth trajectory of the PCs and the HDD hard disk drive going forward, we believe the inventory correction is behind us."


    The panic for WDC was transmitted via a collapse of HDD prices in the retailers,
    where an astute observer noted in July:

    "In checking HDD prices at some on-line retailers, I saw that drives (of popular sizes) had dropped $10/each in early July, which lasted over a month, and now have gone up those $10 back to their Q2 levels. I think this means margins are back to 25%. But stock prices are implying that analysts do not believe the higher prices will stick. So, as usual, it remains to be seen .......... "

    My response to his post:

    surmise, your previous post of $10 drop per HDD put the fear of God into my portfolio. The relentless collapse of WDC share price, violating every premise of ROC and any rational valuation criterion, is probably explained by this $10 drop per hard drive, which would erase margins almost completely if it stuck.

    Well MRVL cc was on 17 Aug and corroborates a reversion to normality.

    Nothing in this world of flux is definitive, but this is as close as you'll get.

    En route back to $40's. Champagne's in the fridge.



    Now that's what i call good analysis!

    Disclosure: Long WDC
    Stocks: MRVL, WDC, STX
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Comments (3)
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  • nice picks... long wdc short crm
    15 Sep 2010, 05:44 PM Reply Like
  • Author’s reply » nicolas southwick lewis (is that a pseudonym), hope you are pretty and famous. cos then, great minds think alike.... If not ummm...
    15 Sep 2010, 06:39 PM Reply Like
  • haha... nope I put my full name w middle name in the article submission (i take everything too literally) for my first SA article and they changed my name to my full name on my profile... not famous, but enjoy investing. I think this will be a fantastic trade. Nick Levis
    17 Sep 2010, 02:04 PM Reply Like
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