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I posted the following on some blog, hoping for some input. I just joined up with the Fool, and wanted to repost it here. I'm hoping to get some input on the possible downsides. I've been considering cashing out the position on the recent gains, but I can't see any reason this stock can't go venturing into the $30s to better align with it's intrinsic value. Please! Someone give me a downside!


I just picked up Seagate at $24.80, and was amazed that a company that displays such leadership in so many market-spaces could be valued at such a low multiple.

You were worried - above - about top-line growth as a possible detriment to value in the future. Doesn't the Maxtor aquisition give them them the brand recognition it takes to expand their sales volume footprint in both consumer and b2b products? And consolidation always leads to pricing power. Sounds like the perfect formula to fuel top-line growth over the next 1-5 years.

I would argue that achieving annual revenue growth by expanding it's existing markets vs it's conventional competitors isn't going to be Seagate's achilles heel. I can't help but worry that the emerging 'flash' storage devices are going to start ovelapping with - and taking market share from - many Seagate and Maxtor products. Flash products from companies like Samsung and Toshiba have been becoming less expensive, and physically smaller per unit of storage each year. It was flash memory that made the ipod nano practical. It was also enough to put Maxtor into a position to NEED this aquisition, as it had leveraged much of its future on it's now failed '1 inch drive'. Flash media also has the benefit of having no moving parts and not needing a constant power supply to store data. This gives it a real edge against some of the other small, low-power solutions and may give it the momentum it needs to have products launched into some of the higher capacity markets like portable computing products. This would be an all-out attack against the conventional hard-disk-based storage products.

In the last quarterly report, management reveals they are aware of this, and are allocaing capital to leverage their strength in higher-capacity products. In other words, they have given up in competing with flash memory for in the small portable consumer electronics business. Is it possible that flash memory could squeeze these traditional players out in the long term (when the market matures)? Could there be trouble a little nearer to the horizon? 'Technology Relevance' is the biggest problem I can see for Seagate right now and I think - with most of their products applying to higher-capacity, less space-dependant applications, it ain't a big one. Do you see any other possible problems we can keep out eyes peeled for in Seagate and Maxtor's future?

Just a guy lookin' to protect his investment. I think things look ok for STX up to 30-35 in the near term.

(PS the anti-trust review on the merger is probably a non-issue. Looks like Western Digital IS good for something even at almost 19 times earnings)

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