Drive vendors seek a
tactical edge. Could this mean lower prices?"> In its conference call with analysts, Brian Dexheimer, Seagates executive vice president of worldwide sales and marketing, said that the first quarter will be "a tactical period where seasonal patterns and longer product lifecycles make industry profitability more sensitive to supply-driven pricing dynamics." While desktop drive prices were low during the December quarter, they could fall even further before March, Dexheimer added.Seagate isnt necessarily going to war on its competitors, as some have concluded, analyst Monroe said. "But if they persist in acting in certain ways, theyre going to say enough is enough, and the elephant will go into a rage. And that doesnt do anyone any good trying to rebuild a profit picture," he added. But the early signs are that isnt happening. Although the industry is in just the first few weeks of the quarter, the pressure on the channel seems to be lesseningbad news for OEMs and consumers, who may see prices rise, or at least fall more slowly. During the annual DiskCON USA conference last summer, storage manufacturers expressed hope that the companies could extend the lifespan of hard disks in the market and earn a bit more profit for a production run. To read more about that strategy and more, click here. "Today, based on independent proactive steps that the industry leaders appear to be taking to appropriately manage shipments in the seasonally softer March quarter, we are confident that channel inventories will be reduced this quarter," said Matt Massengill, chairman and chief executive of Western Digital, in Irvine, Calif., during the companys own conference call with analysts. WD reported revenue of $835 million on shipments of approximately 12.7 million units, and net income of $68.8 million. Massengill also blamed Seagate for stuffing the channel, although he said the outlook for disk drives is bright. "I cannot remember a time when we faced more promising opportunities in both consumer and commercial applications," he said, noting the wide breadth of hard-disk-based products at the recent Consumer Electronics Show in Las Vegas. But although Maxtor, Seagate and Western Digital all reported profits, Wall Street hammered Seagates stock, lowering the share price about 20 percent in a single day. Executives at Maxtor and especially Western Digital hurried to do damage control. "In listening to all the commentary this week and some of the responses to that, I think that many have misinterpreted a lot of the comments that were made," Massengill said. "What the drive industry is saying is that we expect to have softer unit volumes quarter over quarter and that we are going to take prudent steps to manage channel inventories. And I think that is having more of a more profound impact on earnings than margins are."
Stung by the probable decline in market share, Seagate will likely be more aggressive during the coming quarter. "We have no intention to walk away from our market share position," Dexheimer said. "Well defend that territory to the extent it makes sense and works inside the business model and goals that we have."