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Technology Stocks : Seagate Technology -- Ignore unavailable to you. Want to Upgrade?

To: Bald Eagle who wrote (4624)	1/30/1998 9:50:00 PM
From: Quaddad	Read Replies (1) \| Respond to of 7841

From Smart MoneyInteractive: SEAGATE: TIME FOR BOTTOM FISHING? IF Seagate Technology (SEG) begins to outperform the market soon, Patrick Tenney can say he was the first to flag the stock's turnaround. The respected BancAmerica Robertson Stephens analyst upgraded the underperforming disk drive maker to a Buy from Long-term Attractive Friday morning, saying that "we'd rather be early, than late" on Seagate. Its stock, which has fallen over the last 52 weeks from a high of 56 1/4 to a low of 17 3/4 two weeks ago, shot up 2 9/16 Friday, or 12.4%, to 23 3/16, on the news. For this Scotts Valley, Calif.-based company to turn things around, management is going to have to spend more time ramping up its software group, or "its hidden jewel" as Tenney calls it. Primarily known as a disk drive company, Tenney estimates that the company's software sales have a potential valuation of $1 billion. Two of Seagate's current software products that help parcel out Windows NT-like applications to hundreds of employees at once -- WinInstall 6.0 and WinLand 4.0 -- are currently shipping to customers to good reviews. Before you jump back into the disk drive sector, however, remember that this is the same outfit that warned analysts twice in its last quarter that it would not meet earnings estimates. That's not to say that Seagate, one of the stocks we picked last May, isn't due for a bounce. Tenney believes that after it reported an eight-cent loss in its December quarter, it had hit bottom and was ready to make a gradual climb back to respectability. "We believe Seagate has the potential to demonstrate improved performance over the next 12 months through product momentum as well as efficiency and productivity gains," he says. The two key disk drive products are the 2.1 gigabyte Bali and Barracuda 9LP drives, which are set for release over the next three to six months, and the "efficiency" gains he's referring to are the $56 million in one-time charges it took in its December quarter. But what's to be done about the year-long inventory glut that has plagued the entire sector? Tenney says that management promises him it can reduce its level of inventory. We feel, however, that a still-sluggish PC market will keep inventory levels high at least through the spring. But after that, Seagate may be able to capitalize on its emerging software group, its new disk drive products and its leading high-performance hard disk drives in its June quarter. The biggest problem with releasing new, more powerful disk drives is that it pushes more product into a weak marketplace. Tenney, in his well reasoned and optimistic report, accounts for this scenario and predicts that another round of consolidation will take place in the sector that will alleviate the sector's inventory pains. Overall, there are still too many question marks surrounding Seagate -- about its excess inventory, the Asia fallout, and severe competitive pressures from Fujitsu, IBM (IBM) and Western Digital (WDC) -- for us to think that it can make a quick and painless recovery. The end to this nightmarish industrywide downturn may very well be right around the corner -- just don't count on it yet. -- By Eric Moskowitz