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Seagate (STX -3.6%) +2.5% AH after the company discloses David Einhorn has increased his stake...

Seagate (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.
Comments (9)
  • untrusting investor
    , contributor
    Comments (9966) | Send Message
     
    Einhorn is welcome to it at current prices. If STX get back to about $10/share, then maybe it would represent a very good LT investment, but not at current prices.
    11 Jun 2012, 06:49 PM Reply Like
  • Destin
    , contributor
    Comments (472) | Send Message
     
    $10 would offer a dividend yield of 10% and the recently announced buyback plan ($2.5B) would be equivalent to over half of its market cap at $10/share. I don't believe I'd hold my breath waiting for that price.
    12 Jun 2012, 01:58 AM Reply Like
  • MikeStrong
    , contributor
    Comments (3) | Send Message
     
    High tech business background, was English Chartered Accountant, currently enrolled agent. STX currently yields 4.3%, earnings cover dividend 7 times, Storage space far from saturated if it ever will be. Seems a remarkable buy at current levels, Currently long and plan to continue to add. Good to see there are still sellers around like 'untrusting investor'!
    11 Jun 2012, 07:30 PM Reply Like
  • milkchaser
    , contributor
    Comments (958) | Send Message
     
    $10/share? That's fantasy. The company is profitable.

     

    The article does not explain why einhorn's interest is a negative.
    11 Jun 2012, 09:21 PM Reply Like
  • DougRk
    , contributor
    Comments (1592) | Send Message
     
    I'm just starting my DD on STX. Trading at 3x FY12 and 2.5x FY13? What the heck? Consensus would have to be awfully wrong for this to trade down at $10.
    12 Jun 2012, 01:17 AM Reply Like
  • DougRk
    , contributor
    Comments (1592) | Send Message
     
    meant to add: intuition says, the market is pricing is significant erosion of the Winchester market from SSDs, mobile, tablets.
    12 Jun 2012, 01:36 AM Reply Like
  • Mark Williams
    , contributor
    Comments (355) | Send Message
     
    Yes. That is at least half the explanation. I think the other half is the large inventory that WDC got with its HGST purchase.

     

    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.
    12 Jun 2012, 02:28 AM Reply Like
  • DougRk
    , contributor
    Comments (1592) | Send Message
     
    @mark, in general for the SSD market, as WDC and STX enter, who is getting the better margins? WDC/STX as the finishers, or the makers of the underlying flash storage that comprises the SSD? I assume they're buying the flash of course.
    12 Jun 2012, 01:03 PM Reply Like
  • Mark Williams
    , contributor
    Comments (355) | Send Message
     
    Good question. I am not privy to the actual numbers, but I have the following thoughts:
    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.
    12 Jun 2012, 01:58 PM Reply Like
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