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Hard drive manufacturers continue to benefit from the digital gold rush. As virtual goodies go mainstream, sales of storage have been soaring.
The latest to benefit is Seagate Technologies, which saw its FY 2006 Q1 income grow fourfold, year-on-year. Until recently, Seagate manufactured hard drives for iPod minis, and now it is one of the vendors powering the larger iPods. Seagate refers to Apple's move to dump the iPod mini in guarded language within its earnings release, calling it a “product transition in some handheld digital music players and gaming applications”. Despite this, Seagate reported $2.09 billion in revenue and $272 million in net income for the quarter ending September 30th. Those figures compare favorably to revenues of $1.56 billion and net income of $54 million in the year-ago quarter. The company also managed to factor in $4 million in restructuring costs and $16 million in non-stock compensation in the period.
In a statement, Seagate president and CEO Bill Watkins pointed to "healthy demand across all markets, with the most robust growth in the notebook and consumer electronics markets." Across the hard drive industry, demand climbed 20 percent year-on-year, while the amount of storage traded ("petabyte consumption") climbed 60 per cent in the same period. "Consumers are demanding more and more capacity to store, protect and share their digital life," said Watkins. "Disc drives continue to be a central, enabling technology for the digital convergence that is driving the electronics industry”. Meanwhile, Seagate expects to report Q2 revenue in the range of $2.1-$2.2 billion. It also declared a quarterly cash distribution of $0.08 per share to be paid on or before November 18th, and revealed plans for a $400 million stock buyback.
But despite the strong results, analysts responded critically. Bear Stearns analyst Andrew Neff delivering an “underperform” assessment on the stock, which he also applied against Maxtor, Comag and Western Digital. Neff cited climbing component costs and increasing competition from flash memory products, such as those used in the iPod nano. And Wall Street was disappointed with fiscal Q2 projections, driving Seagate (STX) down 35 cents to close at $14.70 on Tuesday.
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