It seems that the big risk people are afraid of with XRTX is that hard drives sales are falling off, and more devices are using flash memory and SDDs.
Obviously that would impact the SI division, since they sell test equipment for HDD manufacturing, which will eventually (but not soon) be obsolete. But why would if affect the storage enclosure business?
HDDs are still selling well for storage, since the drives sit in 19" racks in ideal conditions, and software assures that no data can be lost, thru automatic duplication and switchover. Then techs can hot-swap the defective drive out during maintenance. HDDs are still have the cost advantage, so are not going away.
Looking forward 5-10 years, does it not make sense that as SDDs cost goes down, and they start to seriously replace HDDs in storage arrays, that XRTX will be offering competitive cost enclosures for SDDs also? With all the long-term OEM relationships with all the storage players, why would they not continue to buy newer design enclosures from XRTX? It is true that many more terabytes will fit in one enclosure, but that trend has been going on for a long time. Exponentially more storage space will be required every year as video and hi-density content proliferates.
So I conclude the risk is more to the SI division long term, than the enclosure business.
Does it really matter???.....only one question is relative, is a company that is trading at asset value today worth the risk at 12.2X going forward because an analyst makes an assumption that Xyratex management knows less about their business than he does.
The comments are nothing more than his agenda and doesn't reflect the overall concept of Investing...is it smart to invest in a company trading at asset value today, with a 10 year 24%+- YOY GR track record, top OEM in the world, 1.6B in revenue 2011 and customers like IMB, Dell, HP3Par, WDC, STX, HIT, EMC, Netapp, etc....not to mention 54%+- growth rate in digital content per year for the next 5 years.
So the real debate here is why would an analsyt repeat a downgrade he did prior to today again with the argument and excuse STX/Maxtor merge went rough over 5 years ago and this could impact less that 2% of sales, but they were willing to upgrade 2X book years prior for the company even as the global economy that was close to a depression?
XRTX could sell 1B in debt tomorrow to the market/bankers for expansion of business and 4 analyst would upgrade to buy and pump it to $28.
Analsyt just upgraded WDC after they spent 4B+, all their cash, will have to sell debt to finance buying HIT after analyst believe the merger will go terrible and HDD demand is going down in a ball of flames? All the equipment ear marked for HIT will be delivered and this gives WDC the chance to write down drive inventory and start increasing demand.
Do you think SSD philosophy relative to obsolescence is even in the spreadsheet yet or matters?
"Do you think SSD philosophy relative to obsolescence is even in the spreadsheet yet or matters?"
Not for this year, pertaining to actual sales. But I do think that is the risk that institutional investors are factoring in now, looking out 2-5 years. That's why this stays at PE 5. Retail investors cannot take this stock up on their own. Only institutional investors can do that. But what we retail guys can do is buy value, and hold until recognized by the Street. Can take awhile to happen. Several years maybe.
OK, I read the XRTX Jan 2011 white paper. I talks about the Apple iPad, and concludes that overall HDD growth will not be negatively impacted.
I was more talking in my OP about the evolution of HDD to SSD in storage arrays, not PCs, laptops or tablets, over the next 5-10 years. I personally don't think that the persistence of the XRTX stock price at a PE of 5 is because of projected sales this year, in 2011, but rather over the next 2-5 years.