One analyst sees disk drive makers, including Lake Forest’s Western Digital Corp., hitting a wall in 2010 after a big stock run-up in the past year or so.
“We feel the cyclical peak is approaching in 2010, and we don’t believe conditions can meaningfully improve beyond what is presently baked into the share prices,” said Stephen Simko, an analyst at Chicago’s Morningstar Inc.
Western Digital, which had a recent market value of around $9 billion, has seen its shares rise around 170% in the past 12 months.
Key rival Seagate Technology LLC of Scotts Valley is up more than 400% for the same period on a market value of roughly $10 billion.
Seagate is the top maker of disk drives by market share. Western Digital is No. 2.
Disk drive makers have benefited from a perfect storm of sorts—strong demand, stable prices and lean inventories.
“Shortages across the supply chain in the face of strong demand have led to peak utilization rates,” Simko said in a recent note to clients. “This in turn has actually pushed the prices of hard drives upward, which is very atypical for the industry. We believe this will translate into a very strong first half of 2010.”
But Simko doesn’t see shares rising much higher for the rest of the year.
“With the drive industry at its most profitable level in years, we feel it’s the wrong time to be searching for an entry point,” he said.
In early March, Western Digital said it has readied its first so-called solid state drive, which uses flash memory chips to store data instead of spinning disks.
The new drive—targeted toward corporations in markets such as automotive and transportation, communications infrastructure, video surveillance and industrial automation—stems from Western Digital’s $65 million buy of Aliso Viejo’s SiliconSystems Inc. a year ago.
Seagate, along with local players STEC Inc. of Santa Ana and Fountain Valley’s Kingston Technology Co., also make solid state drives.
Chip Outlook
The chip industry seems to be continuing its slow and steady recovery, according to recent data from the San Jose-based Semiconductor Industry Association.
In January, the most recent month available, chip sales totaled $23 billion, roughly flat from December’s sales but up 47% from January 2009.
“Worldwide semiconductor sales in January increased significantly compared to one year ago, reflecting today’s improving business environment for the industry,” association President George Scalise said. “January and February of 2009 were the low point of the industry downturn.”
This January’s sales could push some chipmakers to revise their outlooks upward, according to Patrick Wang, an analyst at Wedbush Securities LLC in San Francisco.
“We continue to see characteristics of a healthy cyclical recovery, confirmed by a strong start to 2010,” he said in a research note.
That’s good news for Orange County’s biggest chipmakers, which include Irvine’s Broadcom Corp., Irvine-based Microsemi Corp., Newport Beach’s Conexant Systems Inc. and others.
Broadcom Science Fair
Broadcom’s giving arm, the Broadcom Foundation, earlier this month teamed with the Irvine Public Schools Foundation to cosponsor the 29th annual Irvine Unified School District science fair.
Broadcom stepped in to help when it learned that cutbacks in the district’s budget put the science fair in jeopardy.
The sponsorship marks the first education grant the foundation has made since it was formed last year.
Several Broadcom engineers went to the event and checked out the students’ projects, which were displayed at Northwood High School in Irvine.
Virtual Comdex
The Computer Dealer’s Exhibition—a onetime trade show known by most as Comdex—is rising from the ashes, sort of.
The electronics tradeshow is set to make a comeback this year in November, albeit as a digital version of its old self.
Here’s the spin from Everything Channel, a British unit of United Business Media Ltd.: “Virtual events are specially created online digital environments in which participants interact with online content or with other online participants as they would at live, face-to-face events.”
Everything Channel is set to produce a “digital version” of Las Vegas, where Comdex was held from 1979 until it folded in 2003.
At its peak, Comdex attracted more than 200,000 attendees from around the world.
It competed with the International Consumer Electronics Show, a yearly trade show in January that’s put on by the Consumer Electronics Association, an Arlington, Va.-based trade group.
More than two dozen Orange County tech companies exhibit at the Consumer Electronics Show each year, where they show off new products to media, customers and retail buyers.
The two trade shows sparred for years to attract the biggest exhibitors, celebrity names and tech gurus in order to lure more attendees.
The revamped Comdex is set to have a narrower scope, focusing on technology service providers, resellers and others in the information technology supply chain.
United Business Media bought the Comdex brand as part of its acquisition of MediaLive International Inc. for $65 million in 2006.
