MrB Posted December 19, 2012 Share Posted December 19, 2012 To the bulls on HDD, what are your FCF projections for the future? On the surface of this this sounds good, a "commoditized" industry, however, nobody would really want to enter this space, so the scale players could really become good investments. This all makes sense, but is there a specific "turning point" that you're looking for that will unlock valuation? What I find interesting is that FCF is supposedly around $3Bn and $250m of the 50% of FCF that is being returned is in the form of a divi and the rest with a buyback. That should be at least $1Bn which is roughly 10% of the company. $3Bn/$10Bn makes for an obvious bargain and the return of capital provides downside protection. The question to invest hinges on the direction of those cash flows going forward; up or down? Melting ice cube or growing business? We know what the market is saying, but it comes down to volume growth and gross margins. I think there is a more than 60% probability that volume growth will be there, but gross margins are more difficult to call. It has been steady, but for the first time you are dealing with a duopoly with a very fragmented customer base. That traditionally makes for pricing power. With an initial yield of 33% I might be over compensated to take on that risk. If you play around with the FCF numbers then there is a lot of bad news priced in. Link to comment Share on other sites More sharing options...
Palantir Posted December 19, 2012 Share Posted December 19, 2012 To your point, theres about 1.4B in net cash there, so you're really paying 8.6B for that 3M in cash flow. That being said, their share dilution has been erratic, I'd prefer to see consistent buybacks over time....but maybe that will be the case going forward. Link to comment Share on other sites More sharing options...
MrB Posted December 19, 2012 Share Posted December 19, 2012 To your point, theres about 1.4B in net cash there, so you're really paying 8.6B for that 3M in cash flow. That being said, their share dilution has been erratic, I'd prefer to see consistent buybacks over time....but maybe that will be the case going forward. They never had a major ROC program. Recently announced for the first time and they already started the buybacks so I see no reason to doubt it. However their share dilution is significant, as mentioned before...roughly 2% per annum. So net you should a share reduction in the 8%-12% range depending on price. It is also clear from their communications that they think about price so ROC will scale between 100% divi to 100%-250m buybacks dependent on price. Link to comment Share on other sites More sharing options...
ItsAValueTrap Posted December 19, 2012 Share Posted December 19, 2012 http://www.forbes.com/sites/ciocentral/2012/08/02/no-solid-state-drives-are-not-going-to-kill-off-hard-drives/ Perhaps we could look at airlines versus railroads. Obviously the airplane did not kill off rail. But, it killed off a lot of railroad stocks because the small decline in their business was amplified by their high levels of debt. Sometimes a small decline in business can be a big deal. Of course, transportation is different than storage. The storage companies don't have very high levels of debt. And changes in the computer industry tend to happen a lot faster. You might need to guess the future mix between SSD and hard drives... and how that will affect margins. That's hard. Link to comment Share on other sites More sharing options...
MrB Posted December 19, 2012 Share Posted December 19, 2012 http://www.forbes.com/sites/ciocentral/2012/08/02/no-solid-state-drives-are-not-going-to-kill-off-hard-drives/ Perhaps we could look at airlines versus railroads. Obviously the airplane did not kill off rail. But, it killed off a lot of railroad stocks because the small decline in their business was amplified by their high levels of debt. Sometimes a small decline in business can be a big deal. Of course, transportation is different than storage. The storage companies don't have very high levels of debt. And changes in the computer industry tend to happen a lot faster. It might be worth considering that the variable cost structure for rail/airlines v HDD is inverted. 70% variable for HDD, which if your broad thesis is correct means HDD will take much longer to die... Link to comment Share on other sites More sharing options...
ItsAValueTrap Posted December 19, 2012 Share Posted December 19, 2012 I'm not sure I follow. Link to comment Share on other sites More sharing options...
hyten1 Posted December 20, 2012 Share Posted December 20, 2012 To stream everywhere, Netflix encodes each movie 120 times http://gigaom.com/video/netflix-encoding/ Link to comment Share on other sites More sharing options...
MrB Posted December 20, 2012 Share Posted December 20, 2012 I'm not sure I follow. Sorry, I was making some big jumps there. With "inverted" I meant, airlines/railroads have a 70/30 fixed/variable cost structure and HDD has a 30/70 fixed/variable cost structure. Thereby meaning that, If you have a leveraged business with a 70% fixed cost base you have to compete . If you have an unleveraged business with a 30% fixed cost base then you don't have to compete (HDD). You can "afford to" sit back and wait for prices to improve. However, if as you suggested the economics of the industry changes permanently it only buys you more time in the case of the latter. You will still end up in the corporate graveyard. Link to comment Share on other sites More sharing options...
Green King Posted January 4, 2013 Share Posted January 4, 2013 I'm not sure I follow. Sorry, I was making some big jumps there. With "inverted" I meant, airlines/railroads have a 70/30 fixed/variable cost structure and HDD has a 30/70 fixed/variable cost structure. Thereby meaning that, If you have a leveraged business with a 70% fixed cost base you have to compete . If you have an unleveraged business with a 30% fixed cost base then you don't have to compete (HDD). You can "afford to" sit back and wait for prices to improve. However, if as you suggested the economics of the industry changes permanently it only buys you more time in the case of the latter. You will still end up in the corporate graveyard. how did you get the 30/70 number for HDD industry ? Link to comment Share on other sites More sharing options...
Shawn Posted January 4, 2013 Share Posted January 4, 2013 I'm seriously wondering if I should invest in Western Digital or DELL right now..... decisions decisions.... :( Link to comment Share on other sites More sharing options...
MrB Posted January 23, 2013 Share Posted January 23, 2013 Western Digital Hits 15-Year Peak on Talk of Buyout http://www.bloomberg.com/news/2013-01-22/western-digital-hits-15-year-peak-on-talk-of-buyout.html Link to comment Share on other sites More sharing options...
zarley Posted January 23, 2013 Share Posted January 23, 2013 Hehe. I actually lightened up a little bit on WDC yesterday. Still my second biggest position, but now more in line with what I see as a "normal" size. The volatility is crazy on this stock, so I wouldn't be surprised to get another opportunity to buy in the mid to low 30's. Between BRK and WDC, it's been a pretty good couple months. Link to comment Share on other sites More sharing options...
MrB Posted January 23, 2013 Share Posted January 23, 2013 Would you believe it, they actually made money. http://www.wdc.com/wdproducts/library/company/investor/Q213iis.pdf $1Bn in free cash flow for 6 months of 2013 financial year. Over 4 quarters since buying HDGT Overall headcount reduced by 12% Days inventory outstanding reduced by 30% Days sales outstanding reduced by 42% Repurchased 10% of shares over last 3 quarters. ROA 14% ROIC 21% Now who would want to own a company like that? It sells hard drives after all. Link to comment Share on other sites More sharing options...
MrB Posted February 15, 2013 Share Posted February 15, 2013 Greenlight's buying http://www.bloomberg.com/news/2013-02-14/einhorn-s-greenlight-buys-google-aetna-sells-wellpoint.html Zarley, I'm just messing with you, but how do you feel about selling your stock to Einhorn? Link to comment Share on other sites More sharing options...
MrB Posted March 1, 2013 Share Posted March 1, 2013 Ouch...doubling the density? The question is at what cost, but it still is an important breakthrough. HGST Reaches 10-Nanometer Patterned-Bit Milestone, Nanotechnology Process Will Double Today's Disk Drive Data Density AN JOSE, Calif., Feb. 28, 2013 /PRNewswire/ -- HGST (formerly Hitachi Global Storage Technologies and now a Western Digital company, NASDAQ: WDC) is leading the disk drive industry to the forefront in nanolithography, long the exclusive purview of semiconductor manufacturers, by creating and replicating minute features that will allow the doubling of hard disk drive (HDD) density in future disk drives......... http://www.itnewsonline.com/showprnstory.php?storyid=259258 Link to comment Share on other sites More sharing options...
StubbleJumper Posted March 1, 2013 Share Posted March 1, 2013 Ouch...doubling the density? The question is at what cost, but it still is an important breakthrough. HGST Reaches 10-Nanometer Patterned-Bit Milestone, Nanotechnology Process Will Double Today's Disk Drive Data Density AN JOSE, Calif., Feb. 28, 2013 /PRNewswire/ -- HGST (formerly Hitachi Global Storage Technologies and now a Western Digital company, NASDAQ: WDC) is leading the disk drive industry to the forefront in nanolithography, long the exclusive purview of semiconductor manufacturers, by creating and replicating minute features that will allow the doubling of hard disk drive (HDD) density in future disk drives......... http://www.itnewsonline.com/showprnstory.php?storyid=259258 Why is this an "ouch?" Moore's Law seems to be alive and well in the storage arena. The way for hard drives to not be replaced by something else like SSD is to get cheaper and larger. As somebody who has lived the entire transition from 10 MB drives to the enormous beasts out there today, I find the whole process to be fascinating and uplifting. Link to comment Share on other sites More sharing options...
MrB Posted March 1, 2013 Share Posted March 1, 2013 Sarcasm...HDD is supposed to be dying because density gains are topping out. Apparently not. As you said, "Moore's Law seems to be alive and well" Link to comment Share on other sites More sharing options...
zarley Posted March 1, 2013 Share Posted March 1, 2013 Greenlight's buying http://www.bloomberg.com/news/2013-02-14/einhorn-s-greenlight-buys-google-aetna-sells-wellpoint.html Zarley, I'm just messing with you, but how do you feel about selling your stock to Einhorn? Missed this earlier, but I feel fine about it :) . . . given my cost basis and the fact that it's still my second largest holding. I may not get that opportunity to buy back under $40. but that's ok. Plus, the price has moved sideways since I sold. Link to comment Share on other sites More sharing options...
zarley Posted May 3, 2013 Share Posted May 3, 2013 Summary of a Gartner study on the HDD vs SSD choice for enterprise users: http://www.storagenewsletter.com/news/marketreport/gartner-ssd-hdd Analysis The benefits of SSDs are immediately visible to users as a means to improve application performance by reducing electromechanical HDD latencies. In addition, the ROI of SSD performance benefits is immediately apparent and measurable, especially when the applications using the SSDs are high-profile, revenue-generating services. Installing faster components, such as SSDs, into storage systems and servers helps IT departments avoid outlays for time-consuming projects that require specialist application software and infrastructure performance-tuning skills. However, the cost per GB of enterprise-grade SSDs, compared with enterprise-grade HDDs, will remain at prohibitively high levels for the foreseeable future (the cost per GB for enterprise server SSDs will remain at more than 25 times the cost per GB of enterprise business-critical HDDs). Therefore, it will not be economically feasible for IT departments to simply replace HDDs with SSDs within the next five to 10 years. There will continue to be enormous differences between the costs and efficiencies of petabyte - quantity production - for example, when looking at enterprise storage on the devices that were destined for use solely in servers and storage systems. In 2012, the HDD industry delivered 66,358PB in 63.4 million business-critical and mission-critical HDDs, whereas the NAND industry delivered only 1,781PB in 5.7 million enterprise-grade server and storage SSDs. It would cost the NAND industry hundreds of billions of dollars to construct enough new fabrication plants to displace even 20% of the forecast need for enterprise storage, which likely will exceed 500,000PB in 2017. Therefore, within the next five to 10 years, it will be physically impossible to manufacture a sufficient number of SSDs to replace the existing HDD installed base and produce enough to cater for the extra storage growth. Largely consistent with the themes laid out by WDC and Seagate, I think. Key points include SSD speed benefits not needed in all storage uses, and thus not worth the cost. Building the capacity for NAND development to replace existing HDD storage is infeasible due to cost for the foreseeable future. I expect that ASP and margins for HDD will compress over time, but overall demand for storage continues to grow exponentially and HDDs will have a huge share of that. Still long WDC, but a little sad about lightening up my position a few months back. :( Link to comment Share on other sites More sharing options...
bobp Posted May 3, 2013 Share Posted May 3, 2013 MrB! I want to point out that you are a superstar. This has made some move since you were making your case for it here in December. Nice job and thanks. Link to comment Share on other sites More sharing options...
hyten1 Posted May 9, 2013 Share Posted May 9, 2013 folks Jim chanos presentation the sohn conf http://www.marketfolly.com/2013/05/jim-chanos-sohn-conference-presentation.html he is short wdc/stx anyone have the actual presentation would like to see if he present anything that we have not discuss already Link to comment Share on other sites More sharing options...
hyten1 Posted May 10, 2013 Share Posted May 10, 2013 was hoping chanos news would knock the stock down a lot more ... so i can pick up some hy Link to comment Share on other sites More sharing options...
MrB Posted May 10, 2013 Share Posted May 10, 2013 folks Jim chanos presentation the sohn conf http://www.marketfolly.com/2013/05/jim-chanos-sohn-conference-presentation.html he is short wdc/stx anyone have the actual presentation would like to see if he present anything that we have not discuss already I was disappointed, by Chanos' remarks because he did not provide meat. I almost have a feeling he was just winding up DE, who owns(ed) both. The following gives a good sense of what it was about. The meat is in the comments below the short blurp http://seekingalpha.com/currents/post/1014321 Link to comment Share on other sites More sharing options...
MrB Posted May 10, 2013 Share Posted May 10, 2013 Worth a read HAMR Will Make Seagate One Of The Best Tech Plays With Significant Upside http://seekingalpha.com/article/1418781-hamr-will-make-seagate-one-of-the-best-tech-plays-with-significant-upside Link to comment Share on other sites More sharing options...
hyten1 Posted May 10, 2013 Share Posted May 10, 2013 man i sold cover calls for $51, a little while ago now trying to buy it back :( Link to comment Share on other sites More sharing options...
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