Reads like these guys are trying to say something nice, but it's not a really glowing report. No surprise Seagate's down. What do we get from Quantum today? Would probably go well if it started to break through $16.
Regards, Mark
Dow Jones Newswires -- October 14, 1998
Seagate's 1Q Indicates Slow Recovery In Disk Drive Business
By Joelle Tessler
NEW YORK (Dow Jones)--Better-than-expected fiscal first-quarter earnings from Seagate Technology Inc. (SEG) indicate that
the disk drive industry is slowly recovering from the overcapacity and pricing pressure that plagued it during the first half of the
calendar year, analysts said.
But several analysts noted that the business remains very competitive, and that disk drive makers need to follow Seagate's lead
in cutting costs in order to survive in a market where prices could still fall further.
Seagate's shares were recently lower after running up in recent days on expectations that the company would beat first-quarter
estimates. The NYSE-listed stock was recently down 1 7/8, or 7.2%, at 24 on volume of 2.5 million compared with an average
daily volume of 2.4 million.
Seagate earlier Wednesday reported pro forma operating earnings of 19 cents a share on $1.55 billion in revenue for the quarter
ended Oct. 2, compared with 8 cents a share on $1.9 billion in revenue in the year-earlier quarter.
The earnings were 2 cents a share above the consensus estimate. But Hambrecht & Quist Inc. analyst Todd Baker noted that
revenue came in a bit shy of his expectations of a little over $1.6 billion.
"There was nothing dramatic," Baker said. "It was a solid quarter, not a great quarter."
Revenue from Seagate's high-end disk drive business, which makes drives for servers, came in at $765 million, down from
$856 million in the fourth quarter.
According to Gruntal & Co. analyst David Takata, this business has been seeing increased pricing pressure from competitors
such as Japan's Fujitsu and International Business Machines Corp. (IBM). IBM, he noted, has been "very market share
aggressive and very price aggressive."
Still, BancBoston Robertson Stephens analyst Daniel Niles believes the sequential decline in revenue in this business in the latest
quarter was mostly a reflection of "lumpiness" and timing issues. He also noted that revenue was actually up sequentially in the
fourth quarter.
Revenue from Seagate's low-end disk drive business, which makes parts for the desktop PC industry, came in at $627 million
in the quarter, up from $552 million last quarter.
Analysts took this as an encouraging sign since the low-end disk drive business has been hit hard in recent quarters by excess
inventory levels and falling prices in the PC business.
Seagate has also faced intense competition in the desktop side of its business from a number of players such as Western Digital
Corp. (WDC), Maxtor Corp. (MXTR) and Quantum Corp. (QNTM).
Hambrecht & Quist's Baker believes Seagate and the disk drive business overall are seeing a gradual recovery as the the PC
industry comes out of the inventory glut that hit earlier in the year. Supply and demand, he noted, are closer to equilibrium "than
they have been in a while."
Robertson Stephens' Niles added that pricing has been stabilizing.
"Business is gradually getting better," Baker said. "It will continue to slowly improve."
Still, Gruntal's Takata warned, average selling prices remain weak as PC prices continue to fall to $1,000 and below. And while
pricing may fall at a less aggressive rate in the future, he said, "prices never go up" in this business.
In addition, Takata noted, unit sales are not as strong as they were in the past. In the latest quarter, Seagate's disk drive
shipments increased by about 300,000 to 7.14 million from 6.85 million in the fourth quarter. But in the year-ago quarter,
Takata said, shipments climbed by about 700,000.
"Incremental growth is down," he said, adding that this is a sign either that demand is not as great or that Seagate is fighting for
market share as many of its competitors - particularly those in Asia - increase production.
Noting that both the high and low end of the disk drive business remain competitive, Baker added that "factory build plans ...
seem a little high." While this won't present a problem if demand stays healthy, he said, it could lead to more overcapacity if
demand slows as a result of the economic turmoil overseas next year.
Takata believes that in this type of environment, the disk drive manufacturers need to "get more operationally efficient" and cut
costs by closing plants and reducing head counts in order to compete with lower prices.
Seagate, for one, "has been doing a fantastic job with their ... internal operations," he noted.
- Joelle Tessler; 201-938-5285 |
