Storage investors what storage firm do you want to invest in?
1. A flash firm like SNDK that is trading at a inflated FY10 PE of 22, 40% above normal valuation? 2. Has had a series of losses. 3. May have a major product liability issue due to the unstable performance of SSDs. 4. One of its major products is unlikely to be cost competitive against competing hard drives for the next 10 years. 5. Will have to spend billions to build a new fab if the market expands. 6. Competes against a giant like Samsung who is known to be very aggressive in pricing. 7. May have to issue a highly dilutive secondary? 8. Eli continues to dump the stock BIG TIME!
1. The disk drive firms which will report combined record results for the September & December quarters. 2. Based on the current fiscal year estimate, they are currently trading at a PE of just 7, 30-50% below their historical average PE range. 3. Are great cash generators, with $250 M to $450 M in cash flow generated in the most recent quarter. 4. Competition is leaving the disk drive market. Combined, STX & WDC now contol 50-80% of the key segments of the storage market. 5. Both firms have been buying back shares over the past two years and one (WDC) still has $0.5 B to buy back shares. 6. STX CEO recently bought over 1 MILLION shares with his own money. 7. Drive supply is capacity constrained, no new capacity on line until late 2010. 8. STX & WDC entering SSD market and have proprietary advantages over SNDK and others in controller and EEC software. They have also worked with the storage system companies like EMC/NTAP/IBM for many years.
I like both. Just a few corrections - 2009 was an aberration. Forward P/E for SNDK is below 7 - 50% below historical. STX and WDC are also oversold. SNDK has a higher beta, so it will go higher (and when markets go down will drop faster). I would, once we have a short term correction, buy SNDK MU STX and WDC for my storage asset allocation for 2010.