Hutchinson Technology is really trying my patience. They just keep pushing along in that gray area between success and failure, with plausible excuses. Now it looks like they will hit 130 million units, maybe in 2Q 2015. Nine months ago, the hoped-for date was 4Q 2014.
It's not a problem of losing share. It's just that the new programs which should increase share are taking longer to ramp than expected. Having made that adjustment, things are moving about where they should be. Gross margins, even at these low volumes are nearing 10% as production moves to Thailand.
This valuation can move quickly with margin improvements, margin improvements can move quickly with volume, and volume can change quickly. And, all of these things can happen with just a 5% gain in hard drive sales and a 5% market share gain, both of which could legitimately happen in a few quarters. And, they have made progress since the Thai floods in 2011. Losses are significantly lower. The previous quarter was the best quarter since the floods. If we had seen a positive shift of 15 million units this quarter instead of a negative shift, we'd be at breakeven now. So, am I being greedy, waiting for the big payoff that's never going to come? Or am I being greedy, missing the obvious improvements that the firm has seen, because I'm being impatient?
In a couple of years, this will either look like a brilliant position, or it will be a position where I was being obtuse and I'll wonder why I didn't see how obvious it was that this wasn't panning out.
Some of these are easy and some, like this one, are hard. The problem is that the hard ones frequently work out ok in the end. The ones that seem easy are probably mostly a product of lucky timing, where I just happened to find the company right before things turned positive, but that if I had found it 2 years earlier, I would have found it just as compelling and I would have been frustrated and doubting.
For now, I am keeping this position on, but if the options market becomes a little more efficiently priced, I will continue to look for ways to change my exposure to call options.