- JP Morgan notes that last night, Komag (NASDAQ:KOMG) filed an 8-K, which highlighted the agreement. This should not be relatively new news as Komag telegraphed prospects of rising substrate (unfinished disks) sales on its last earnings call. Meanwhile, the filing also stated that Seagate assumes parts of the old Maxtor media supply agreement with Komag.
Firm's checks indicate that ASPs for 3.5-inch and 2.5-inch substrates (unfinished disks) are approximately $1.55 and $2.00, respectively. This compares to ASPs on similarly-sized finished disks of approximately $5.50 and $6.75, respectively. Thus, it is apparent how the substrate revenue stream cannot offset potential slippage in the core finished disk revenue base. They believe such a deal actually points to Seagate's longer-term shift away from external media suppliers.
Komag's new substrate supply agreement might serve a temporary tonic, but in firm's view, it does not represent enough of a buffer to greater risks in the coming year. They expect Komag shares to remain under pressure owing to 1) sluggish HDD unit trends, 2) more tenuous media pricing, and 3) ongoing expansion plans at Hitachi GST, Seagate, and Showa Denko. JPM continues to recommend actively trimming positions in Komag shares.
Notablecalls: I saw some buyers in KOMG last night in after market action. Nothing big, though. Can't call the note actionable in any way.
Firm's checks indicate that ASPs for 3.5-inch and 2.5-inch substrates (unfinished disks) are approximately $1.55 and $2.00, respectively. This compares to ASPs on similarly-sized finished disks of approximately $5.50 and $6.75, respectively. Thus, it is apparent how the substrate revenue stream cannot offset potential slippage in the core finished disk revenue base. They believe such a deal actually points to Seagate's longer-term shift away from external media suppliers.
Komag's new substrate supply agreement might serve a temporary tonic, but in firm's view, it does not represent enough of a buffer to greater risks in the coming year. They expect Komag shares to remain under pressure owing to 1) sluggish HDD unit trends, 2) more tenuous media pricing, and 3) ongoing expansion plans at Hitachi GST, Seagate, and Showa Denko. JPM continues to recommend actively trimming positions in Komag shares.
Notablecalls: I saw some buyers in KOMG last night in after market action. Nothing big, though. Can't call the note actionable in any way.
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