Tuesday, October 03, 2006

Calls of Note Part 3

- Goldman Sachs notes that despite a disturbing number of yellow flags from the HDD supply chain in the form of negative preannouncements by Marvell, Komag, Innovex and a disappointing outlook from Xyratex, they still expect Seagate (NYSE:STX) to reach consensus forecasts. Specifically, they think the preannouncements are more about share shifts and inventory corrections than underlying HDD demand for the industry or Seagate. In fact, they continue to expect normal seasonality in the back half of the calendar year and have already seen encouraging signs in the Asia supply chain that reinforce that view.

Firm sees Marvell's lower revenue outlook for the October quarter as driven by an already-expected inventory drawdown at Western Digital and lower orders to Marvell from other hard drive companies that had earlier built up inventory jockeying for Maxtor share. With share positions stabilizing, much of the noise should smooth out in the
seasonally-stronger December quarter.

They would take advantage of weakness in STX shares on the back of Marvell's preannouncement. Low fundamental expectations and a low valuation imply that Seagate could bounce appreciably as it reports in-line September-quarter results.

Notablecalls: Catching STX down 1-1.5 pts in the pre mkt would make a nice trade. Wishful thinking?

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