- Deutsche Bank notes that last week they met with Seagate's (NYSE:STX) CFO Charles Pope and came away very comfortable with the company's ability to return to its pre-Maxtor operating model. Firm continues to believe Street estimates are too low, and do not fully factor in the benefit of Seagate's technology lead in PMR and the cost savings resulting from the closure of the Maxtor facilities. They also believe recent concerns about Flash taking over the HDD market have been overdone.
The firm came away from our meeting very comfortable with STX's ability to return to its 24-26% GM target range in the March Q, and believes investors do not fully appreciate the significant leverage of STX's model from the ramp of PMR and the closure of Maxtor. The ramp of new low-cost drives (primarily due to PMR) gives STX a significant cost advantage versus competitors, particularly in notebook where pricing has been aggressive.
STX plans to ramp Woodlands #3 over a 3-year period (similar to its Woodlands #2 ramp), which the firm believes is slower than many investors expect. They view this slow and steady ramp as a positive for Komag (NASDAQ:KOMG), as model suggests STX will continue to rely on Komag for media. This contrasts with market sentiment that Komag's STX business to be significantly curtailed with the Woodlands #3 ramp.
STX's shares have been under pressure in recent weeks and are are now trading at 9x FY08 EPS estimate of $2.75, below STX's median FTM P/E of 12x. Reits Buy and $31 tgt.
Notablecalls: Nice comments by Deutsche. Think there will be some buy interest in both STX and KOMG. The sentiment in KOMG has been very negative lately, but the stock showed some signs of s-t bottoming yesterday.
The firm came away from our meeting very comfortable with STX's ability to return to its 24-26% GM target range in the March Q, and believes investors do not fully appreciate the significant leverage of STX's model from the ramp of PMR and the closure of Maxtor. The ramp of new low-cost drives (primarily due to PMR) gives STX a significant cost advantage versus competitors, particularly in notebook where pricing has been aggressive.
STX plans to ramp Woodlands #3 over a 3-year period (similar to its Woodlands #2 ramp), which the firm believes is slower than many investors expect. They view this slow and steady ramp as a positive for Komag (NASDAQ:KOMG), as model suggests STX will continue to rely on Komag for media. This contrasts with market sentiment that Komag's STX business to be significantly curtailed with the Woodlands #3 ramp.
STX's shares have been under pressure in recent weeks and are are now trading at 9x FY08 EPS estimate of $2.75, below STX's median FTM P/E of 12x. Reits Buy and $31 tgt.
Notablecalls: Nice comments by Deutsche. Think there will be some buy interest in both STX and KOMG. The sentiment in KOMG has been very negative lately, but the stock showed some signs of s-t bottoming yesterday.
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