Seagate Slashes Sales Forecast for Quarter

CEO Bill Watkins says there is 'a lot of fear out there'

December 13, 2008

3 Min Read
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It is becoming clear that the storage industry isn't immune to the economic downturn. Hard-disk drive maker Seagate Technology Inc. (NYSE: STX) has cut its revenue guidance for the current quarter and said it will shut down its U.S. facilities from Dec. 22 until after New Year's Day in a cost-cutting move.

Seagate released a revised second-quarter revenue forecast on Wednesday, saying it expects $2.3 billion to $2.6 billion in revenue for the period ending Jan. 2. The company had previously predicted revenue for the quarter to hit around $3.05 billion. Analysts had been predicting revenue of $2.9 billion.

Seagate shares rallied on the bad news Wednesday, rising nearly 8 percent. The company's stock has declined more than 75 percent so far this year.

CEO Bill Watkins told the Barclays Capital Global Technology Conference in San Francisco that demand for hard drives had stalled over the past month. "We actually had a pretty decent October and we started seeing the pullback about in the second week of November," he said. "There is a lot of fear out there. I don't think anyone is very comfortable about where they are."

Seagate joins other large tech companies like Advanced Micro Devices (NYSE: AMD), Cisco Systems Inc. (Nasdaq: CSCO), Computer Sciences Corp. (CSC) (NYSE: CSC), Intel Corp. (Nasdaq: INTC), and Hewlett-Packard Co. (NYSE: HPQ) that have issued revenue warnings. Several also are shutting down operations for the holidays.The company has around 50,000 employees, and most of them working at U.S. facilities will get unexpected time off during the holidays. There may be shorter shut-downs at non-U.S. facilities, the company said. The closure may last as long as three weeks at some facilities; the last time the company shuttered for the holidays was 2004, the company said.

Gartner Inc. says Seagate is the world's largest maker of hard disk drives, ahead of Western Digital Corp. (NYSE: WDC), Hitachi Ltd. (NYSE: HIT; Paris: PHA), Samsung Corp. , and Toshiba Corp. (Tokyo: 6502).

Analysts were quick to slash their earnings estimates for Seagate in response to the news. Analyst Thomas Curlin at RBC Capital Markets cut his 18-cent earnings estimate for the quarter to zero, and slashed his forecast for the full year to 36 cents from 79 cents per share. Doug Reid at Thomas Weisel Partners cut his earnings estimate for the quarter to 5 cents per share from 21 cents.

Separately, Reuters reported that data storage maker NetApp Inc. (Nasdaq: NTAP) announced it will close its SnapMirror for open systems product line, which the company acquired through its $160 million purchase of Topio in 2006. The software, which is used for data replication and recovery, "was never adopted by customers in the way the company anticipated," NetApp said in a regulatory filing.

The company will close its facility in Haifa, Israel, which employs 51 people. NetApp expects to take $12 million to $14 million in charges, mainly related to the impairment of assets from the Topio acquisition, and an additional $5 million to $7 million in charges for closing the Haifa facility.0

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