Among HDD component counters that had been on a losing streak since last Thursday, Notion was the only one which ended lower yesterday.
The others, such as JCY International Bhd, Dufu Technology Corp Bhd and Eng Teknologi Holdings Bhd, took a breather with all ending the day flat.
Notion has also lost the most in the recent sell-off among the HDD component players, with its shares slumping 25.7% since last Thursday, compared to losses of 3.6% for Dufu and 11.9% for Eng.
As of yesterday, JCY, which began sliding a day earlier on Wednesday, is down 9.71% since then.
This could partly be due to the fact that Notion’s shares had rallied strongly earlier this year, following the entry of Nikon as a substantial shareholder, an aggressive expansion plan and the listing of JCY which re-rated the sector upwards.
In a phone interview with The Edge Financial Daily yesterday, Notion’s executive chairman Thoo Chow Fah, said that he does expect a weaker second calendar quarter for the industry.
He declined to speak on Notion’s own financial results for the third quarter (3Q) of its Sept 30, 2010 financial year, scheduled to be announced on Thursday.
The weaker quarter would not be due to reduced demand, given that global shipments of HDD in 2Q at 155 million units were only marginally lower than 1Q’s 162 million units, said Thoo.
The reason for the weaker quarter was due to reduced average selling price (ASP) by US-based largest and second largest maker of HDDs in the world, Seagate Technology and Western Digital Corp, respectively.
Aggressive pricing by the two rivals due to excess inventory have brought ASP down to US$51.80 (RM165.24) per unit from US$56.10 per unit previously, Thoo said.
As for 3Q of this calendar year, Thoo said, “We have a conservative outlook on quarter three for the industry. The prolonged economic problems the US and Europe are among factors that will affect growth (negatively in 3Q).”
“But I think there will be a recovery in 4Q,” he said.
Thoo dismissed recent news reports, both locally and in the US, that the popularity of Apple’s iPad was a significant factor in affecting HDD demand.
Apple’s iPad tablet device, uses flash memory chips rather than HDD.
Thoo said, “If you look at iPad sales in 2Q, it is only three million units compared to global HDD shipments of 155 million. It is not the reason for weaker topline and bottomline.”
Thoo believes that the iPad’s popularity is not because it uses flash memory over HDD, but rather its software.
“Once the (PC) notebook makers get their act together, this will not be a problem,” he said.
HDD is expected to remain dominant in the foreseeable future as it continues to provide large amounts of data storage at a competitive price.
For the longer term, Thoo said that since 1990 till today, the demand for memory in computing devices has only gone up.
“There’s no recession in data. Data continues to grow, there is not going to be a slowdown in the volume of data and there is continuing demand for memory,” he said.
Indeed, an industry observer says demand for HDD is being increasingly driven by the need for storage for applications for Internet-based applications, as well as technological advances and innovation for consumer electronics products.
Global Internet penetration is rising and web-based applications such as blogs, social networking and emails are gaining popularity in usage, irrespective of economic conditions.
The industry observer noted that the HDD industry was also relatively resilient during the recent global crisis, except for a bad patch in 1Q09. During that quarter, inventory de-stocking by the major HDD producers resulted in a dearth of orders for the component suppliers. Orders later resumed strongly as the economy recovered.
A senior analyst covering the sector at a major bank-backed research house, who declined to be identified said, “Flash is not going to replace HDD in the long term, but for the stocks in the sector, there is no strong catalyst for growth to drive up share prices.”
He said that HDD related companies look to be entering a “normal growth” phase.
The recent price cutting by Seagate and Western Digital were not a concern, he said adding, “This is quite normal due to the tech cycle.”
However, he said that JCY being a major supplier to Seagate and Western Digital would be impacted more by the price cuts than Notion.
TA Securities Research senior chartist Stephen Soo echoed the analyst’s view, saying, “Notion VTec is definitely grossly oversold with its relative strength index is below 20. It is due for a rebound.”
Notion, which saw the entry of its client Nikon Corp (with a 8.96% holding as of March 31) as a strategic shareholder in January, should be less exposed to the HDD price fluctuations as it is diversified into SLR digital camera components as well, said Soo.
At present the breakdown of revenue contribution in Notion is 45% for HDD, 45% for SLR cameras and 10% for electronic chips for the automotive industry.
However, RHB Research Institute in its report on Notion issued yesterday believed that the company’s 3Q ended June 30, will likely be worse than expected due to higher costs incurred from the RM80 million expansion of its 2.5 inch HDD baseplate capacity.
Lower revenue would also result from a stronger ringgit against the US dollar.
RHB has downgraded the stock from outperform to underperform with a lower target price of RM2.07 based on a more conservative target financial year ending Sept 30, 2011 price-to-earnings ratio of eight times (versus 10 times previously).
“Although the camera segment remains resilient and will provide some support to revenue growth, the focus will likely remain on the negative outlook for PC sales growth and the oversupply of HDDs,” the research house said.
This article appeared in The Edge Financial Daily, August 4, 2010.
No comments:
Post a Comment