Fears of a price war in the disk drive market cast a dark cloud over the whole sector after Seagate Technology Corp cut its forecast for the year after a huge shortfall in deliveries in the personal storage market over the December quarter.
The result was second-quarter figures way below expectations with net income up 3.5% at $205m on revenue 1.5% higher at $1.7bn. CEO Steve Luczo said it would not achieve its previous forecast of earnings of $1.55 to $1.60 for 2004.
Seagate’s shares fell 21.6% to $15.93 on the news. Gloom at the prospects of vendors slugging it out for orders prompted competitor Maxtor Corp’s stock to fall 15.1% to $10.45, while Western Digital Corp’s share price fell 14.3% to $11.11.
While Luczo said Seagate met expectations and held market share in the enterprise market and far exceeded its expectations in the notebook market, its financial performance was hit by unsatisfactory execution in its personal storage programs.
Shipments were 1.4 million below expectations, primarily among its OEM customer base, after its decision not to sell certain products at unacceptable market prices and execution issues. Seagate blamed its competitors for expecting growth of 8% to 10% while it believes that total market growth was only 3%. This has led to higher channel inventories, which Seagate calculates to be in excess of six weeks.
Seagate forecasts that the total market for personal storage products in the third quarter will be 47 to 48 million, representing annual growth of 11% to 13%. With few, if any, new product launches expected over the next two quarters, Seagate expects its share of the market to remain stable in the 32% to 34% range.
This article is based on material originally published by ComputerWire