Seagate 3Q Profit Falls
(San Jose, Calif.) Seagate Technology LLC, the world's largest hard drive
maker, said Tuesday its fiscal third-quarter profit fell 22 percent because
of a tough pricing environment, weaker-than-expected demand and acquisition
The company also substantially lowered its fiscal year outlook amid concerns
of continued price wars and potentially choppy demand for computer disk
The forecast sent Seagate shares falling more than 5 percent in after-hours
"It looks pretty bad," said Shaw Wu, analyst at American Technology
Research. "The guidance is worse than expected, and I think that's
why the market is reacting the way it is."
Seagate officials said the fall in prices in March, most notably in disk
drives going into desktop and notebook computers, were the steepest cuts
they had seen in the industry in three years.
Last week, Seagate had warned that pricing pressures and lower-than-expected
industry demand for its 3.5-inch ATA disk drives would cause it to fall
short of earlier internal targets of $2.9 billion to $3 billion in sales
and earnings of 56 cents to 60 cents per share.
Indeed, for the quarter ended March 30, the company posted earnings of
$212 million, or 37 cents per share, on sales of $2.8 billion. In the
year-ago quarter, Seagate earned $274 million, or 53 cents per share,
on sales of $2.3 billion.
Excluding $62 million in acquisition-related charges and other one-time
items, Seagate said it would have earned $274 million, or 47 cents per
Analysts, on average, were looking for earnings of 51 cents per share
on sales of $2.8 billion, according to a survey by Thomson Financial.
Seagate officials were disappointed in the results.
"We clearly miscalculated the market, and in this unusually challenging
environment failed to deliver the projected results," Chief Executive
Officer Bill Watkins said. "However, it is worth noting that the
fundamentals of our business and that of the industry remain solid."
Yet Seagate doesn't expect the pricing pressures for the industry to
ease any time soon as some of its rivals have set their sights on gaining
market share even while incurring losses.
"I've got competitors who are losing hundreds of millions of dollars,"
Watkins said in a phone interview. "I can't do that, but we are bringing
our guidance down."
For the fiscal year, Seagate said it now expects earnings of 92 cents
to 96 cents per share on sales of $11.3 billion to $11.4 billion. In January,
following a record $3 billion holiday quarter, Seagate had a more bullish
annual earnings forecast of $1.27 to $1.32 per share on sales of $11.5
billion to $11.7 billion.
For the current quarter, Seagate said it expects to post earnings of
29 cents to 33 cents per share on sales of $2.65 billion to $2.75 billion.
Excluding one-time costs, it expects earnings of 34 cents to 38 cents
per share -- significantly lower than the earnings estimate of 53 cents
per share by Wall Street analysts surveyed by Thomson Financial.
Shares of Seagate lost 39 cents, or 1.7 percent, to close at $22.15 on
the New York Stock Exchange. Following the report, shares fell $1.17 in
Seagate is based in the Cayman Islands but operates out of Scotts Valley.