Towards Financial Freedom
HARD DISK DRIVE - Gloom, not boom
At the start of this year, there was a strong demand uptick for Hard Disk Drive (HDD) industry with PC OEMs taking up every piece of inventory in avoiding another supply disruption as a result of the floods in Thailand. In view of the persistent demand from emerging economies as well as the strong pricing power from the oligopolistic environment, we upgraded the sector and expected Singapore component suppliers to benefit. Since then, these stocks have surged as much as 40-70%. However, the rebound looks short-lived as the industry is now facing major headwinds from weakening demand as well as supply issues.
First negative growth in ten years for PC markets. Gartner has cut 2012 global PC shipment forecast to 363m (-0.4% growth), a sharp reduction from a previously forecasted growth of 4.4%. We attribute this to 1) weaker-than-expected contribution from emerging markets, 2) tablet cannibalisation and 3) growth drivers such as Windows 8 that may be deferred to 2013.
Seagate: Guidance down. Our channel checks indicate that the outlook for Seagate has deteriorated faster than what the market is currently expecting, with some customers defaulting on post-flood contracts. Though not public available, their internal guidance for 2H2012 have been revised downwards multiple times resulting in needs to temporarily shut down plants in Suzhou and Wuxi, China.
Western Digital: Slashing workforce. Our sources tell us that the company has temporarily closed down their Malaysiaand Thailand plants during the last five days of June in an effort to cut back production. More worrying is talk that WD will be cutting headcount by 20% and 10-15% in Malaysia and Thailand respectively. Adding to the woes, it is currently facing a key component shortage problem.
Downgrade to UNDERWEIGHT. Subsequently,we underweight the sector and expect SGX-listed companies to be hit.Downgrade Armstrong to SELL given that its tradition of high yields is not expected to be maintained this year. Retain Broadway's NEUTRAL rating in view of its cheaper valuation multiples.
Source: OSK
First negative growth in ten years for PC markets. Gartner has cut 2012 global PC shipment forecast to 363m (-0.4% growth), a sharp reduction from a previously forecasted growth of 4.4%. We attribute this to 1) weaker-than-expected contribution from emerging markets, 2) tablet cannibalisation and 3) growth drivers such as Windows 8 that may be deferred to 2013.
Seagate: Guidance down. Our channel checks indicate that the outlook for Seagate has deteriorated faster than what the market is currently expecting, with some customers defaulting on post-flood contracts. Though not public available, their internal guidance for 2H2012 have been revised downwards multiple times resulting in needs to temporarily shut down plants in Suzhou and Wuxi, China.
Western Digital: Slashing workforce. Our sources tell us that the company has temporarily closed down their Malaysiaand Thailand plants during the last five days of June in an effort to cut back production. More worrying is talk that WD will be cutting headcount by 20% and 10-15% in Malaysia and Thailand respectively. Adding to the woes, it is currently facing a key component shortage problem.
Downgrade to UNDERWEIGHT. Subsequently,we underweight the sector and expect SGX-listed companies to be hit.Downgrade Armstrong to SELL given that its tradition of high yields is not expected to be maintained this year. Retain Broadway's NEUTRAL rating in view of its cheaper valuation multiples.
Source: OSK
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This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....
