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VMware, Inc. Message Board

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  • wggm wggm Jan 30, 2013 2:00 AM Flag

    Why I sold at 90 many months back. Real competition

    Hi, equityrich. All day long I have been reading comments like yours from people on the ground that were aware that Openstack etc. were eating VMW's lunch. I am amazed that the analyst community is so far behind the curve (I suppose you could say the same thing about Apple, but in my mind that had to do with how to value the competitive threat, not missing it completely). In any event, I was wondering if you were aware of any similar situations to VMW. Thanks for any response.

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    • The only similar trend and I think it will just take some more time to play out is in the disk drive sector. You have companies like Seagate that got shot to new highs more as a function of the Thailand floods and constrained supply that gave them pricing pressure. I believe competitive pressure will push these commodity products to lower margins and we already see it in this last quarter by Seagate with lower YOY earnings. The Thai flood although horrible for the people there was a windfall for Seagate. IT spared their factories while taking out their competitors. For them it was a perfect storm.

      Going forward they have competitive pressures coming back. Seagate used to be 12/share. Now 3x that price, again thanks to the flood. More capacity coming online and with the slump in pc sales you will see fewer consumers buying drives. Some of this will be made up in the cloud as people store more and more there but the unit sales don't equal each other out.

      In other words a big company like facebook or google will store billions of photos. They will fill drives and then add more. Very efficient. Compare to home users getting 1TB or 2TB drives and using only a fraction of the space. For Seagate/WD they get a unit sale to the home user of which most of the storage is unused. In contrast all of the storage will be used before new units purchased in the data center.

      Last these drive makers have HUGE pressure from SSD drives and tablets/mobile. Tablets won't be using hard drives. Tablets will ship more than PC's this year. This is a huge headwind. Flash drives on laptops and PC's are also replacing spinning disks quickly. Prices coming down. I'm typing this from an Alienware with a 512GB SSD. Boots in 15 seconds. Hard drives cannot compete. Once the minimum usable capacity price comees down a bit more you will see PC's shipping with 1TB SSD's as standard. Just another headwind that is unstoppable. Traditional spinning drives are the horse and buggy whip in the coming years.

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