Seagate Sees 3Q Price Falls Capping Desktop Drive Revenues
SINGAPORE (Dow Jones)--Pricing pressures will cause disk drive maker Seagate Technology Inc. (SEG) to post flat revenues for its desktop disk drive business in the current fiscal third quarter to March 31, compared with the preceding quarter, a key company officer said Tuesday.
In an interview with Dow Jones Newswires, chief operating officer William Watkins said desktop disk drive shipments are expected to rise in the current quarter but the company continued to face pricing pressures.
"There are some pricing pressures (for desktop drives)... (downward) pressure on the average unit price in the (current) quarter. At best, revenues will be flat," said Watkins, who is in Singapore for a major disk drive conference.
However, Watkins declined to give specifics about the price decline. Many analysts have expected price declines to stabilize after severe price erosion over the past few quarters. Prices of drives fall an average of about 8-10% every quarter. But at the height of the slump one year ago, prices of drives fell as much as 30% a quarter.
Looking ahead at the desktop drive business, Watkins said: "I think there will be a pricing decline. There is always pressure on pricing".
Seagate, which has major manufacturing plants in Singapore, is slowly emerging after 18 months of a bloodbath in the disk drive industry.
The company, which has lost market share to competitors, has restructured operations and closed manufacturing plants, slashed its workforce, fired its former chief and cut its inventories over the past one-and-a-half years to regain its competitiveness.
Watkins said the company had an "unusually strong" second quarter, which ended in December. In stark contrast to the previous quarters, Seagate announced a net profit of US$104 million for the second quarter to Jan. 1, compared with a net loss of US$183 million for the same period a year ago.
Whether the recovery trend will continue was still unclear, Watkins said Tuesday. "There is very little visibility on what is going on. We're trying to figure out what is going on" like what happens in August, said Watkins.
The first and third quarters of the year are usually quieter periods in terms of manufacturing for disk drive companies, after meeting orders ahead of summer and the traditionally busy Christmas season. Desktop drives tend to comprise the bulk of manufacturing for most companies.
However, Watkins said that the high-end drive business and the launch of a new product for desktop computers will boost sales in the current year ending June 1999.
He said there "will be some upside" in revenues from the high-end segment in the current quarter over the last quarter. "The Cheetah (one of the company's high-end disk drive product families) is doing very well. We'll continue to see that".
By the next quarter, the company expects to hit volume production for its 18- and 36-gigabyte drives. The bulk of the company's high-end drives are now made in its flagship plant in Ang Mo Kio in Singapore.
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