market folly

We're posting up notes from the Sohn New York Investment Conference.  Next up is Todd Westhus of Olympus Peak Asset Management who presented a Western Digital (WDC) trade: long bank debt / short bonds.


Todd Westhus's Sohn New York Presentation

•    Western Digital (WDC) - negative cyclical and secular headwinds. Capital structure arbitrage. Long bank debt/short bonds. 2 points downside with 50 points upside.

o    HDD is losing share over time to SSD where WDC is a smaller player. HDD is in secular decline.
o    SSD has cyclical and competitive issues. WDC is losing market share in SSD
o    SSD inventory bloated and prices falling. Cycle is early and WDC has worst balance sheet in industry
o    HDD industry revenue expecting to decrease 15% over 4 years. Melting ice cube
o    WDC SSD has been growing 2% a year while industry grew 24%.
o    WDC has an inventory issue
o    Margins going to get worse. Gross margins likely to go flat or negative in a recession
o    China will be entering SSD market and will create more supply.
o    $11 billion of debt and EBITDA can go negative in a recession from $4 billion today


Be sure to check out the rest of the Sohn New York conference presentations.