Disk Drives' Woes Continued In 1Q; Slow Recovery Seen
By CHRISTOPHER GRIMES
Dow Jones Newswires
NEW YORK -- For the three big U.S. disk-drive companies, the first quarter was another nasty one.
The industry's top name, Seagate Technology Inc. (SEG), is expected to post results 108% lower than the March quarter a year ago. For Western Digital Corp. (WDC), the decrease is expected to top 150%. A 93% earnings falloff is projected for Quantum Corp. (QNTM).
The only publicly traded "pure play" disk-drive companies left in the U.S., these companies have struggled for more than six months with swollen inventories and aggressive moves from rejuvenated competitors. While some analysts think the industry has hit bottom, they aren't enthusiastic that it will recover quickly.
The industry is "coming to an end to the worst part of a correction, but there's no agreement as to how long it will take to get back to its historical strength," said John Dean, an analyst at Salomon Smith Barney.
Analysts said the computer industry usually begins to slow down from June to August, so a noticeable improvement isn't anticipated until the third or fourth quarter.
"This is a difficult time to try and stage a recovery," said Todd Bakar, an analyst at Hambrecht & Quist Inc.
Seagate's problems were illustrated in January, when the Scotts Valley, Calif., company said that it would lay off about 10% of its 100,000 employees as part of a large restructuring.
According to a First Call Corp. consensus estimate, Seagate is expected to have lost 9 cents a share in the period, the company's third fiscal quarter. That compares with earnings of $1.07 a share in the year-ago quarter, excluding charges.
But Joel Pitt, an analyst at Deutsche Morgan Grenfell Inc., said he "wouldn't be surprised if they came in below that. They had a real tough quarter."
Seagate has lost market share for high-capacity disk drives to International Business Machines Corp. (IBM), he said, and it has lost business in the competitive market for desktop PC drives, too.
"Seagate has fallen back in position because it's been late" in getting its disk drives to customers on time, Pitt said. "It's been a pretty disappointing quarter, on the whole."
For Quantum, getting the business wasn't the problem, but "as they got (the business), the pricing wasn't what they had planned for," said Mark Specker, an analyst at SoundView Financial Group Inc.
Quantum said March 24 that its earnings would come in below forecasts. Specker expects the company to have earned 4 cents a share in the period, its fourth fiscal quarter. Quantum, of Milpitas, Calif., earned 56 cents a share in the same period last year, accounting for a 2-for-1 stock split June 10.
Western Digital also has been hurt by the heightened competition in the desktop computer sector. About 90% of the Irvine, Calif., company's sales come from the desktop PC market, which has become increasingly competitive in the past year. Companies like Maxtor Corp., a unit of Hyundai Electronics Industry Co., and Fujitsu Ltd. have won business with PC makers by cutting prices, analysts said. In addition, Western Digital was slow to adopt new magneto-resistive head technology.
Bakar of Hambrecht & Quist expects Western Digital to have lost 48 cents a share in the March quarter. The company earned 88 cents a share a year ago, accounting for a 2-for-1 stock split June 4.
"It's been a tough stretch here for the company," Bakar said, adding that he expects the company to "lose money through the September quarter as well."
The difficulties these companies face make the environment tough for investors. Most analysts are cautious about the group, while acknowledging that the industry probably will turn around eventually.
"If you can be patient, the returns can be significant," said Andrew Neff, an analyst at Bear Stearns & Co. "When the industry fundamentals change, the market will reflect it in 20 to 30 seconds. You have to buy early." |
