Falling Market, Company Missteps Hurt Seagate Financials

hard drive

The storage vendor on Wednesday said its preliminary loss for the quarter, which ended Jan. 2, would be $496 million, or $1.02 per share. This compares to a profit of $403 million, or 73 cents per share, reported for the same period last year.

Seagate also reported revenue of $2.3 billion, down over 32 percent from the $3.4 billion reported last year.

Seagate estimated it shipped 37 million hard drives during the second fiscal quarter of 2009, down 26 percent from the 50 million or so drives it sold last year.

The loss comes at a tough time for Seagate. Not only is the company facing the current economic downturn, it is also having to deal with several internal issues.

Sponsored post

Steve Luczo, Seagate chairman, president and CEO, said the economy is a significant challenge for companies of all sizes, and customer cutbacks in spending impact Seagate.

"We are currently experiencing one of the worst economic downturns in a generation," Luczo said.

Luczo said that Seagate expanded its capacity in 2006 in anticipation of rising demand, but starting last year -- and continuing on through this year -- will cut facilities, personneland other costs to meet what he termed "new economic realities."

Seagate also slipped in terms of innovation, Luczo said. For instance, after a high growth in areal density, or the number of bits of data stored on a given space on a disk platter, over the past few years, Seagate slowed down its investment in increasing that density and got behind in terms of the technology, he said.

One immediate issue not addressed in Wednesday's earnings call is the quality of its Barracuda line of hard drives, especially in the 1.0-Tbyte and larger models. Several news organizations report that an update to firmware Seagate released in November to fix issues related to its 1.5-Tbyte Barracuda 7200.11 drives is now causing issues with other drives.

In response to economic issues, Seagate in December slashed its revenue expectations for the quarter and mandated unpaid furloughs for much of its staff during the holidays as a cost-cutting measure.

Earlier this month, the company said William Watkins is resigning as CEO and that David Wickersham is resigning as president and CEO, with company Chairman Stephen Luczo taking over the CEO and president positions. It also said it plans to cut 10 percent of its U.S. workforce.

In the earnings call on Wednesday, Bob Whitmore, a 20-year Seagate veteran, was introduced as the company's new executive vice president and CTO.

Whitmore said Seagate is on track to develop new higher-areal density products. For instance, he said new drives with 7,200-rpm spin rates and 500 Gbytes per platter are in customer qualifications. Seagate also expects to start shipping enterprise-class solid state drives (SSDs) during the current calendar year.

However, Whitmore said, Seagate is cutting back on its capital spending going forward, with fiscal year capital spending expected to be about $650 million, or about $350 million lower than originally expected. Capital spending in fiscal year 2010 is expected to be below $500 million.

Patrick O'Malley, Seagate's executive vice president and CFO, called the second quarter a challenging one due to a drop in overall market demand.

O'Malley said the industry originally expected the total available market for hard drives to be 156 million units, a figure which then fell to 135 million later in the quarter. However, the actual market turned out to be about 123 million units, leading to a drop in average selling price for hard drives in the double digits, he said.

Seagate lost about 2 points of market share during the quarter, O'Malley said.

For its third fiscal quarter, Seagate said that because of the current market environment and the uncertainty in global economic conditions, its revenue is expected to be in the range of $1.6 billion to $2.0 billion, compared with last year's actual third-quarter revenue of $3.1 billion.