Bad News From Seagate Splashes Tustin Supplier

TUSTIN — In a dramatic example of how the food chain works in the stock market, bad news from Seagate Corp. has battered the stock of an Orange County company that is one of the giant disk drive maker’s key suppliers.

Shares of Tustin-based Smartflex Systems Inc. fell 11.4% Wednesday after a 7.9% drop Tuesday as industry analysts said the company would likely see a drop in earnings as Seagate curtails orders. Smartflex shares closed Wednesday at $11.625, off $1.50, in heavy Nasdaq trading. The price was down almost 20% from $14.50 on Monday.

Seagate said last week that the market for its high-end computer disk drives was soft and that it could not predict when demand would rise again. Seagate is expected to curtail production of the drives, which use electronic connection devices made by Smartflex.

David Kang, a technology industry analyst with Seidler Cos. in Los Angeles, said investors are nervous because Seagate is one of Smartflex’s largest customers. Smartflex recently opened a manufacturing facility in the Philippines to handle Seagate products, and “that plant may now be severely underutilized,” Kang said.

Other Seagate suppliers also could be hurt by the downturn in the Scotts Valley, Calif., disk maker’s fortunes. Shares of an Arizona electronic connectors supplier, Adflex Solutions Inc., fell 62.5 cents Wednesday to $18.375, for example. But Smartflex is taking the biggest hit because Seagate is one of its top five revenue sources.

William Healey, Smartflex chairman and chief executive, said he does not know yet just how Seagate’s sales problems will affect his company.

“We just began talking with Seagate last week, and we suspect their orders may be off,” he said. “But we have other business that may be strengthening, so one could offset the other. About 60% of our business is at the high end of the disk drive market, and we play across the whole spectrum, so if one customer isn’t strong, another one usually is.”