The Aleph Blog » Blog Archive » Another Win for the Broad Market Portfolio

Another Win for the Broad Market Portfolio

Well, score one more for my portfolios, Komag is being bought by Western Digital for $32.25/share. This was a remarkably quick win, given the initial purchase back in late March, and a rebalancing buy in late May.

Investments rarely work this quickly, but I am grateful when they do. In the last portfolio reshaping back in March, I put more weight on EV/EBITDA, and Komag scored well there. I’ll be selling Komag at the portfolio reshaping, which should take place in the next two weeks.

I sometimes mention that my investment methods allow me to be away without worrying too much; this closing week of the quarter is one more example of that, at least, so far.

PS — On another note, wasn’t it interesting today to see the market get excited about the supposedly dovish FOMC language, and then sell into the reality that nothing had changed?  I chuckled; people expect too much of the FOMC…

Full disclosure: long KOMG

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3 Responses to Another Win for the Broad Market Portfolio

  1. amccabe says:

    Congratulations! I did not see this one coming at all…. Do you think this bodes well for HTCH?

  2. I don’t know HTCH that well, but it seems that vertical integration is a real plus in the disk drive business. Can you think of some player that needs what they have?

  3. amccabe says:

    I didn’t know anything until you asked… but since you did, I did some research.

    From HTCH’s last 10-K, the largest customers in 2006 by sales:
    SAE Magnetics, Ltd./TDK 28 %
    Alps Electric Co., Ltd. 20 %
    Western Digital Corporation 15 %
    Seagate Technology, LLC 15 %
    Innovex, Inc. 8 %

    From HTCH’s 10-Q filed in May, the largest customers in the quarter:
    Seagate Technology LLC 29 %
    SAE Magnetics, Ltd./TDK 26 %
    Western Digital Corporation 16 %
    Alps Electric Co., Ltd. 9 %
    Fujitsu Limited 7 %
    Hitachi Global Storage Technologies 5 %
    Innovex, Inc. 4 %

    Some notes from the last STX and WDC 10-K’s:

    WDC, pg 17 – sounds like they do not produce any of their own suspensions, mostly heads (and after KOMG, platters)

    “Under our business model, we do not manufacture many of the component parts used in our hard drives, however, for some of our product families, we do make most of our own heads. As a result, the success of our products depends on our ability to gain access to and integrate parts that are “best in class” from reliable component suppliers. ”

    STX, pg 23 – they don’t produce any of their own suspensions, either.

    “Particularly important components for disc drives include read/write heads, recording media, ASICs, spindle motors, printed circuit boards and suspension assemblies. We rely on sole suppliers or a limited number of suppliers for some of these components, including recording media that we do not manufacture, ASICs, spindle motors, printed circuit boards and suspension assemblies. ”

    I don’t know the other suspension assembly suppliers, but it sounds like Hutchinson thinks they are the best :) (pg of their 2006 10-K).

    So it sounds like HTCH could be fairly strategic to STX and WDC, and possibly some of their other major customers… the (big) exception being SAE Magnetics/TDK, which started producing it’s own suspensions in 2005 through a joint venture called NAT Peripherals (pg 5 of the 2006 HTCH 10-K).

    HTCH doesn’t look as cheap to me as KOMG did (except on p/s), though. I’d be interested in you opinion. I’m somewhat tempted to start a position now.


David Merkel is an investment professional, and like every investment professional, he makes mistakes. David encourages you to do your own independent "due diligence" on any idea that he talks about, because he could be wrong. Nothing written here, at RealMoney, Wall Street All-Stars, or anywhere else David may write is an invitation to buy or sell any particular security; at most, David is handing out educated guesses as to what the markets may do. David is fond of saying, "The markets always find a new way to make a fool out of you," and so he encourages caution in investing. Risk control wins the game in the long run, not bold moves. Even the best strategies of the past fail, sometimes spectacularly, when you least expect it. David is not immune to that, so please understand that any past success of his will be probably be followed by failures.

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