Seagate Reports $33 Million Loss in Fourth Quarter

But the storage company says it expects greater sales in the second half, thanks to a deal with Creative Technologies and more expansion in the consumer electronics space.

Seagate stumbled in its fiscal fourth quarter, but design wins with Creative Technology Ltd. and a raft of new products portend greater sales in the second half, the company said.

Seagate Technology Inc., of Scotts Valley, Calif., reported a loss of $33 million on revenue of $1.34 billion, including $39 million in a one-time restructuring charge. Net income and revenue fell compared with a year ago, when the company reported net income of $160 million on revenue of $1.55 billion.

For fiscal year 2004, Seagate reported net income of $529 million on revenue of $6.22 billion, compared with $641 million on sales of $6.49 billion for fiscal year 2003.

Seagates unit shipments were a mixed bag. Overall, the company shipped 18.3 million desktop drives, a slight increase from the 18.0 million drives it shipped during the previous quarter. The company shipped 13,356 desktop drives and 460,000 mobile drives, a decrease in both categories. Enterprise drive shipments, however, increased to 1.9 million units.

But even more telling was the companys performance in the CE (consumer electronics) space, a market Seagate had largely passed by in prior quarters. There, Seagate shipped 1.93 million units, a sharp jump from the 1.06 million drives it shipped the quarter before. Seagates CE drives are a key part of the companys 2004 roadmap.

Seagates CE presence stands to increase further through a contract the company signed with Creative Technologies Ltd. The Singapore sound giant will use Seagates previously announced 1-inch, 5-gigabyte ST1 drive as part of its forthcoming MP3 player lineup. The drive will begin shipping this quarter, executives said.

"Seagates business model is built for long-term performance," Steven Luczo, Seagates chairman, said in a conference call with analysts Tuesday afternoon.

Seagate executives professed themselves happy with the rate of sell-through in the reseller channel, which will leave the company with a relatively slim five weeks of inventory heading into the third calendar quarter. Inventory levels are a key metric analysts have used to gauge the financial performance of companies such as Intel Corp., as they worried about the sudden emergence of a pricing war.

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But competitive pricing is a fact of life in the disk-drive industry. "Every quarter prices drop, and the only question is how much and who to blame," Luczo said.

Enterprise drive pricing continued to be pinched, executives said, although the overall decline in pricing was lower than in prior quarters, according to Brian Dexheimer, executive vice president of global sales and marketing at Seagate.

According to one analyst on the call, a major storage vendor recently complained of a shortage of 15,000-RPM drives. Neither Dexheimer nor the analyst named the customer; for his part, Dexheimer said Seagate "felt good" about 15,000-RPM drive prices for the third quarter.

The big plus for Seagate, however, could be within the CE market. In addition to the Creative deal, Seagate has begun to court PVR (Personal Video Recorder) makers, who use hard disk drives to store recorded video. Seagate has an "aggressive" build plan in the CE space, Dexheimer said.

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