Seagate Technology Cuts 4th-Quarter Revenue, Margin View
07/05/2012| 06:16pm US/Eastern
--Seagate cuts its guidance for revenue and gross margins
--Hard-disk drive maker cites quality issues at supplier and faster-than-anticipated recovery in industry
--Many analysts have cut estimates in recent weeks on worries of slowing demand
(Updates throughout with additional details.)
By Shara Tibken
Seagate Technology Inc. (>> Seagate Technology PLC) cut its revenue and gross margin expectations for its recently ended fiscal fourth quarter, hurt by quality issues at a supplier and by a faster-than-anticipated recovery in the hard-disk drive market.
Seagate, one of the world's biggest providers of hard-disk drives, had benefited of late from its strong position following severe flooding in Thailand. Rising water in the region damaged facilities of some of Seagate's rivals, allowing it to take share amid the production disruptions. However, the industry has been recovering faster than many expected, lessening Seagate's advantage.
Chief Executive Steve Luczo on Thursday said the company didn't achieve its planned market-share growth in the fiscal fourth quarter as it reduced shipments in response to the industry's faster-than-expected recovery from the Thai supply-chain disruption.
Mr. Luczo also noted the company experienced an isolated supplier-quality issue that impacted drive shipments for business users by approximately 1.5 million units and drove adjusted gross margin below its targets. The company, however, said it suspended shipments of the affected products and has resolved the issue.
For the quarter ended June 29, the company now expects revenue of about $4.5 billion and adjusted gross margin of 33.6%. Its prior view called for revenue of at least $5 billion and adjusted gross margin of at least 34.5%.
Mr. Luczo indicated the September quarter could also be tough. He said the company is approaching the period "conservatively" due to macroeconomic concerns, with plans for a flat addressable market and "modest" improvements in product mix. Average selling prices and margins should remain relatively stable, Mr. Luczo said, and Seagate should still exit the year with adjusted gross margins above 30%.
Seagate declined to comment further. The company is scheduled to report results July 30.
Shares of Seagate, up 53% in the year to date through Thursday's close, sank 3% to $24.34 after hours.
Shares of rival Western Digital Corp. (>> Western Digital Corp.) declined 3.5% to $29.60. Unlike Seagate, Western Digital's production was severely hurt by the Thai flooding, but it said in April that it would be able to meet customer demand going forward.
Many analysts have cut their estimates for the hard-disk drive makers in recent weeks, worried about a softening economic landscape and weaker demand for PCs, a key market for disk drives.
"This is not exactly a shock," Needham analyst Rich Kugele said. "Seagate is level setting to what had already been rumored. ... The bottom line is the world softened in May."
In April, Seagate reported its fiscal third-quarter earnings surged for a second-consecutive quarter, again topping analysts' expectations, as the company experienced pent-up demand and higher prices for drives that continued to support soaring results.
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