APRIL TO JUNE is traditionally an off-peak season for hard disk drive (HDD) sales, but 2Q09 shipment of 40.6 million units by world No.1 HDD maker, Seagate, beat most analyst forecasts. Shipments grew 6% from the Jan-Mar period.
Shipments by world No.2, Western Digital, were even more positive, hitting a record of 40 million units, up 27% quarter-on-quarter and up 14% year-on-year.
Analysts believe that the strong results by Seagate and Western Digital, which together command more than 60% of the global market, signal an end to the HDD recession.
UBS’s recent interviews with US and European Chief Investment Officers also suggest that US and European IT budgets are expected to surprise on the upside going into 2010, as companies prepare to upgrade their hardware systems after the usual 3-5 year period.
HDD makers need a myriad of mechanical and electronic parts. Some HDD component makers listed on SGX include Adampak, Armstrong, Beyonics, Broadway, Map Tech, and Cheung Woh.
1Q09 was a tough quarter for most component makers, but given the sector upturn, analysts are expecting earnings surprises for the current results reporting season.
Leading foam and rubber components maker, Armstrong, will announce its 2Q09 results on 11 Aug.
Seagate and Western Digital are Armstrong’s two largest customers.
This is a stock that is highly rated by investors for growing every year since 2001 in the fiercely competitive tech-manufacturing sector. Armstrong’s earnings dipped year-on-year for the first time in FY08 in the aftermath of the global credit crisis.
DMG recently upgraded the stock to ‘Buy’, after a survey with insiders from the electronics industry revealed across the board restocking.
Armstrong specializes in components that reduce noise and vibration for the automotive and electronics industries.
Components for hard disk drives (categorized as data storage in its financial statements) contributed 28.9% to 1Q09 revenues.
Another boost to Armstrong’s business comes from the recovery in China’s auto industry. Automotive components accounted for more than 26.5% of 1Q09 revenues.
Sales of passenger vehicle in China rose 25.6% year-on-year for the first half of 2009 and reached 4.5 million units, according to the China Association of Automobile Manufacturers (CAAM).
CAAM has raised its projection of total car sales in 2009 to reach 12 million, i.e. a 28% increase year-on-year. It believes the industry has bottomed out, after 2008’s dismal growth in car sales (6.7%, the lowest in 10 years).
On 23 Jul, DMG upgraded its call to ‘Buy’ with a target price of 29 cents based on 10X FY10 PE, implying an upside of 18% based on Tue's close price of 24.5 cents. Lim & Tan also reiterated its ‘Buy’ call on Armstrong on the same date.
A leading Asian label converter, Adampak expects to announce its 2Q09 results on 14 Aug.
The HDD sector contributed to more than half of its 1Q09 revenues. Seagate, Western Digital and Fujitsu are its major customers.
It makes high-performance labels, radio frequency identification (RFID) tags, seals and other precision die-cut components mainly for the electronics sector.
Its labels are used for identification, warnings, instructions, tracking and security, while its die-cut components include adhesive free zone seals, dampers, insulators and bonding tapes for absorbing vibrations, reducing noise and for sealing and bonding purposes.
DMG is neutral on Adampak with a target price of 15 cents while NRA Capital has a ‘Hold’ call on it with target price at 19 cents. The stock closed yesterday at 18.5 cents.
* Read about Adampak CEO recently accumulating shares: LAGGARDS which might be under-appreciated gems