Seagate Reports Slight Profit Gain Despite Personal Storage Turmoil - Page 2

In addition, the company pointed to a general oversupply of personal storage products on the market. Instead of the expected modest growth in the production of personal storage products, competing manufacturers had ramped up to a 10 percent growth rate, which then boosted inventories and marketwide pressure on prices.

Inventory levels of finished goods climbed by about $22 million to $250 million from the prior quarter, or $383 million in total inventory, according to Charles Pope, the companys chief financial officer. After its reseller channel partners began feeling the strain, Seagate began putting in place processes and programs to help boost the companys image in the channel, stabilize pricing and minimize gray market reselling, said Brian Dexheimer, executive vice president of worldwide sales and marketing at Seagate.

However, managing this inventory will be the keystone of the companys financial health—or lack thereof—until the fall, when new products are scheduled to be introduced.

Until then, the industry will enter "a tactical period where seasonal patterns and longer product lifecycles make industry profitability more sensitive to supply-driven pricing dynamics," Dexheimer said. "Therefore the largest single influence on our performance for this period will be the responsible management of industry supply of current products."

Prices may well fall for the current quarter, executives warned, leaving the industry in a wary détente where price moves will be carefully watched. Seagate may well be the only company that actually slowed production in the fourth quarter to manage inventory, executives said.

In the first calendar quarter, the "total available market" will be about 47 million to 48 million units, Dexheimer said; the company believes that it can regain market share, ending up with its traditional share of between 32 percent to 34 percent of the total desktop market, he said. Shipments of Serial ATA drives totaled less than 5 percent of all shipments during the quarter, and will remain a minority until midyear, when more chipset makers add the technology to their products.

However, President Bill Watkins called the launch of the Momentus 2.5-inch mobile drive an "unprecedented success," and executives said new, smaller form factors are planned. Rival Toshiba Ltd. has announced a 0.8-inch disk drive, and Hitachi Global Storage Technologies sells the Microdrive, a 1-inch drive that the company acquired through a merger of storage assets with IBM last year.

/zimages/6/28571.gifSeagate re-entered the mobile drive market in the summer. Click here to read more about its plans.