HDD Sees Light in Hybrid Ultrabook

Hard disc drive (HDD) has a hard time competing with solid state drive (SSD) as a computer storage device, especially with the increasing popularity of tablets such as ipad and galaxy tab over notebook. Everyone is expecting the HDD industry to suffer permanently.

SSD, which is quiet, lighter, faster and has higher performance than HDD, has a major problem: expensive. SSD is priced more than 10x more expensive than HDD per GB. However, with the emergence of Ultrabook by Intel, HDD is expected to breath again.

Ultrabook will put traditional notebook into history. It is much lighter, thinner, faster with longer battery life. It has some crucial advantage over tablet in which in tablet there is no real keyboard and sometimes cannot perform this and cannot support that.

      Ultrabook: strongly pushed by Intel

Ultrabook which starts to hit the market in 2011, initially use mostly 128GB SSD. However, to increase the storage capacity to 500GB-1TB without increasing its cost much, a hybrid storage solution is introduced. In this hybrid of external cache SSD+HDD, a small capacity of cache SSD is incorporated with a large capacity of HDD to increase the overall storage capacity without affecting the speedy SSD performance much. Another technology called hybrid HDD is another different thing under development by Seagate in which the cache SSD is incorporated internally into a HDD.

Some analysts predict that ultrabook with hybrid storage will explode into the market in year 2012. Thus, hybrid storage and HDD demand will get a major boost as well. 

        Figures for HDD in Ultrabook ONLY

      Ultrabook share in notebook

       
     Notebook share in overall mobile PC

Personally I don't fancy things like ipad, galaxy tab, iphone etc. I don't even own any of those gadgets. I don't think ultrabook will be as popular as the ipad. However, ultrabook will certainly make more people to reconsider the forgotten "notebook". If the forecast of ultrabook demand is right, then HDD industry will surely make its comeback strongly, starting from year 2012.

Can Notion Avoid Loss?

In its presentation for 2011Q4 financial results in Nov 2011, Notion warns that it may register a loss-making quarter in 2012Q1 (Oct-Dec 2011). This includes RM3million loss for damaged finished products, RM2million loss for inadequate insurance cover on machinery, and expected 45% drop in revenue for 2012Q1 due to the Thai flood.

Global major HDD manufacturers are badly hit by the flood. Most of them have factories in Thailand which produces about 60% of HDD in the world. Notion's factory in Thailand was closed down because of the flood. However, the plant mainly produce camera parts and it makes up only 3% of Notion's revenue. Notion mentioned in Nov that the forecast of reduction in revenue is mainly due to reduction in orders by its main HDD customers such as Western Digital and Seagate, whose production have ceased due to the flood.

      Flood in Ayutthaya, Thailand

Reduction in order by WD & Seagate should affect JCY as well. Though JCY's factory in Thailand is not affected by the flood, but if there is no order from customers, it is still useless even if the factory is in good shape. However, it turns out to be the other way round.

Since mid October, JCY share price starts its rally after reports saying that it will benefit from the Thai flood.  Besides the fact that JCY's Thai factory is not affected, the price of HDD has increased by 50-100% due to shortage of supply. Some source mentions that JCY receives a lot more orders esp from Western Digital. JCY's share price has gained almost 200% since Oct 2011.

Western Digital is also Notion's major customer. Why no one mention about Notion? Western Digital does not order from Notion because of logistic issue?

Yesterday, (4th Jan 2012), JCY releases its profit guidance for its 2012Q1 (Oct-Dec 2011). It expects its net profit to surge 1900% YoY to the region of RM120million, which will be 50% more than its previous record quarterly net profit. The reasons given are increase in average selling price, stronger USD vs MYR, effective product mix and efficient cost management.

Notion's discouraging presentation was back in November 2011. Has anything changed their forecast in December 2011? As in JCY's case, Notion should be able to benefit from increased selling price of HDD and stronger USD, and perhaps increased order recently???

      Notion in Klang

In the previous quarter, Notion has successfully acquired 3 new customers, at least to partly compensate the anticipated lower orders by existing customers. Its facility in Thai is expected to restart by Feb 2012. However, its camera parts main customer Nikon is also affected by the flood.

It's hard to predict how Notion will perform in the period of Oct-Dec 2011. Will it plunged into red because of those one-off losses, or will the damage be offset by higher selling price and demand for HDD?

HDD Players Head-to-Head

Eng, JCY and Notion all have released their latest financial results this month. Lets see all of them in a glance.

Rev (Profit) RM mil	Current quarter	QoQ	YoY
Eng	133 (5.6)	120 (4.8)	135 (12.6)
JCY	395 (-31.8)	397 (12.4)	481 (55.6)
Notion	61 (10.1)	54 (10.8)	61 (2.9)

Obviously JCY is the worst performer. Eng and Notion are able to hang on with their revenue. Even though Notion get the least revenue, but its profit margin is quite impressive with the greatest net profit.

Eng has the smallest amount of outstanding shares (122.5 mil), followed closely by Notion but JCY has almost 16x more. For FY2010, EPS of Eng is the greatest with 40sen with Notion 25sen and JCY 8.6sen. However, this is going to change in the current FY11 in which we will see Notion top the rank. Eng may be then be privatized if the takeover is successful.

JCY in Red Alert

 

JCY International just posted its FY11 Q3 financial result, it makes a loss of RM 32mil and for the first time since listed in Feb 2010, its cumulative net profit falls into red.

The loss in current quarter is mainly due to lower sales and high material cost, with global demand of PC weaken. Recent fear of another round of recession definitely does not help JCY.

I still remember the time when JCY was listed, it is regarded as one of the biggest tech IPO in south east Asia. It is the largest HDD manufacturer in Malaysia, with a revenue 10x more than Notion Vtec and 4x more than Eng Technology. Its revenue and profit in the first 3 quarters of 2010 are impressive. However after that, everything seems to go wrong with JCY.

RM mil	Revenue	Profit
FY10 Q1	528	77
FY10 Q2	550	66
FY10 Q3	481	55
FY10 Q4	486	-22
FY11 Q1	439	7
FY11 Q2	397	12
FY11 Q3	395	-32

There is a remarkable turn in JCY's profit, together with the worrying reduction in its revenue.

Today JCY opens at 45sen, down 2sen from yesterday's close. From an IPO price of RM1.52 merely one and half year ago, JCY has seen 70% of its value wiped off. Those who bought the share at its high of RM1.95 in April 2010 and hold until now will suffer a substantial paper loss.

     JCY since listed. Going downhill.

What about the whole FY2011 result 3 months later? Can JCY turn its fate around? I don't think so. Perhaps it will end the FY in red, from a RM176mil profit last year.