News

Seagate 3Q Profit Falls

• By The Associated Press
• April 17, 2007

The company also substantially lowered its fiscal year outlook amid concerns of continued price wars and potentially choppy demand for computer disk drives.

The forecast sent Seagate shares falling more than 5 percent in after-hours trading.

"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 share.

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 extended trading.

Seagate is based in the Cayman Islands but operates out of Scotts Valley.