Seagate Reports Slight Profit Gain Despite Personal Storage Turmoil

UPDATED: Seagate on Tuesday reported net profit of $205 million for its recent quarter. But disappointing performance in its personal storage business kept revenue flat compared with the year-ago quarter.

Storage manufacturer Seagate Technology LLC on Tuesday said it had shipped a record number of hard drives in its second fiscal quarter and that net income had climbed slightly. Still, its revenue was flat year-to-year after disappointing sales in its personal storage business.

A combination of price erosion and quality issues dragged Seagates fourth-quarter sales well below the $1.8 billion to $1.84 billion range company executives forecast at the end of Seagates first fiscal quarter in October. Instead, the company reported revenue of $1.76 billion and net income of $205 million for its second fiscal quarter ended Jan. 2, 2004. Revenue in the year-ago quarter was $1.73 billion, with a net income of $198 million.

While the companys expectations were met in its enterprise and mobile storage groups, problems cropped up for its personal-storage business. It experienced a 1.4 million-unit shortfall in its sales projections for personal storage drives. Seagate shipped a total of 21.7 million disk drives for the quarter: 16.1 million desktop drives, 1.90 million mobile drives and 2.74 million enterprise drives, with the remainder going into consumer electronics products.

"Our financial performance was hindered by a combination of execution issues and accelerated price erosion for personal storage products that resulted in financial results for the quarter that were below our expectations," said Steve Luczo, chairman and CEO, during a conference call with analysts.

Seagate officials said for the second straight quarter they were forced to retool one of their drives to satisfy a customer. The drive was not named, although company executives said the platform could not handle humidity. The drive had to be redesigned and requalified, and OEM sales suffered.

"Were not happy about quality," Luczo said. "We had two specific issues in each of the last two quarters, and were not happy about it at all."

However, Seagate executives also said OEMs began leaning on Seagate and other suppliers at the end of the fourth quarter, pressuring them to sell drives at what Seagate executives called "unacceptable market prices." Luczo said customers of the companys enterprise drives leaned harder still, forcing prices down.

Next page: Oversupply of personal storage products.