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WHY SO MUCH SMART MONEY IS SO HIGH ON READ-RITE !
Link to article below:
Commentary: Herb on TheStreet.com
Why So Much Smart Money Is So High on Read-Rite
By Herb Greenberg
9/26/00 6:30 AM ET
Feeling benevolent, so let's get bullish:
Reading right: As I've written in RealMoney.com's Columnist Conversation, the
one stock quite a few of my smartest sources are yapping about is Read-Rite
(RDRT:Nasdaq - news - boards), the (until very recently) long-forgotten maker of
heads for disk drives. The only reason I take it seriously is because of the variety of
investors in the stock (from seasoned and savvy traders to some of the
most-dogged researchers I know).
Most of the sizzle surrounding the company in recent weeks has been tied to the
launch of a new division called Scion Photonics, which is developing optical
wafers for use in the fiber-optic networks, and which was initially funded with $25
mil from Tyco Ventures and Roger McNamee's Integral Capital, which got a
quarter of the company in return.
But that's only part of the story:
According to Scott Turkel of TCM Partners, who has had his share of hits and
misses in this column, and who also happens to be the only on-the-record holder
among my sources, the company without Scion is worth about where it trades
today, $10.50, or around 1 times sales. "They're completely sold out in their core
business in the fourth quarter," he says, "and for the first time, they have pricing
power." (One reason is that disk drives are no longer sold mostly for PCs; they've
become a staple in storage networks.)
Scion, meanwhile, is currently valued at around $100 million (based on
Tyco/Integral's 25% stake). "Chump change," says Turkel. That's because the
valuation is without even having a marketable product; the first wafer isn't expected
to hit the market until next year (which, I should point out, is why some skeptics
are, uh, skeptical).
But another very sharp manager I know, who is often short stocks, said he saw
Read-Rite at several recent conferences, and "I thought the story got better
between Salomon Smith Barney and Banc of America, both on the optics side
and on their base business. They actually showed a slide of the optical wafer
prototype they had made; they said they are sampling product with several
customers. They said, Our customers have said, 'If you can make them, we'll buy
them.' In other words, the move to optical is less theoretical than it was a month
What's more, according to this money manger, who is great at spotting nuances,
"They went from saying, 'We'll be break-even cash flow in Q-4 from core
businesses,' to saying, 'We are on allocation and we may actually make money in
Q4' from the core business.' "
Based on that, Turkel (who first bought the stock when it was $4 not long ago)
thinks he now owns a $10 stock that is worth $25.
P.S.: Read-Rite recently paid the first installment of interest on a convertible bond
with cash, rather than stock, which was an alternative. (The cash came from the
State of Wisconsin Investment Board, already a large Read-Rite investor.)
Translation to some investors: The only reason the state paid with cash is because
it thinks the stock is going higher. Or, put another way, Wisconsin, which already
owns a 20% stake, wouldn't have sunk in even more cash if it didn't think it would
make a decent return. (Did I really write something that glowing? Must be some
kind of a market top!)
(Voluntary Disclosure: Position- Long)
Read-Rite CEO gets into growth
By Janet Haney, CBS.MarketWatch.com
Last Update: [Timestamp]NewsWatch
SAN FRANCISCO (CBS.MW) -- Read-Rite Chief Executive Officer Alan Lowe waxed positive about the future growth prospects for the magnetic-recording-head supplier.
Lowe told a crowd of investors and analysts during a presentation at the Banc of America Securities Investment Conference in San Francisco on Thursday that he expects huge unit growth potential for Read-Rite's (RDRT: news, msgs) December quarter, as well as the possibility of profitability.
Lowe added that the company is hiring people as fast as it can for its wafer fabrication facility.
For the September quarter, the CEO said Read-Rite has a "lot of product to ship in the last 10 days of the quarter."
Additionally, Lowe talked about Read-Rite's recent formation of an independent fiber optic company called Scion Photonics which he said hopes to go public.
Scion received funding from Tyco, which will make a presentation at the conference later Thursday.
Janet Haney is a reporter for CBS.MarketWatch.com.
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