Upside seen for storage
Investors snap up shares in several large storage makers after an analyst reports the sector may finally be ready to grow again.
Quantum, Seagate, and Read-Rite all closed up today by more than 9 percent.
Dan Niles, an analyst with BancAmerica Robertson Stephens, issued a report this morning that Seagate may be picking up steam and catching up with the recovery seen by the chip and computer makers.
"After talking with Seagate and Quantum, we get the feeling that their business is starting to see the same growth as the DRAM and microprocessor markets have seen," Niles said in an interview. (The analyst is a columnist for CNET News.com.)
He noted that after companies like Compaq Computer, IBM, Intel and Micron have made recent comments that business was picking up and that the disk drive industry was the only place where such an uptick had not been seen.
"Either business was not quite as good as it seemed for the [chip and computer makers], or not as bad for the storage guys," Niles added, noting that after discussions with the disk drive companies he learned it was the latter.
Seagate, as previously reported, and a number of other storage companies were hit with a sluggish July due to Asia's economic woes and concerns over a slumping computer sector. But the industry has shown signs of improvement this month, according to Niles.
For example, reseller CHS Electronics last week said in its quarterly analysts' conference call that it was 10 percent ahead of its business plan for July with its hard disk drives, and that it could see a shortage developing in the 3 to 4GB densities by the end of the year.
As a result, a number of storage companies saw double-digit jumps in their stock prices last Thursday, with Read-Rite posting the largest gain with a 31 percent increase.
"Although we believe that the predictions of a shortage by year-end are overly optimistic and that [CHS's] current strength in July has more to do with the rebalancing seen from a very weak June, we were for obvious reasons encouraged by the general tone of the statements made," Niles noted.
In addition to holding a "buy" rating on Seagate, the industry watcher said the stock provides a "near-term opportunity" for investors willing to look at the trends seen in other component sectors and anticipate it rippling through the hard drive disk industry in the quarter.