Seagate, Quantum Issue Market-Glut, Earnings Warnings
Two of the biggest computer disk drive companies--Seagate Technology Inc. and Quantum Corp.--sent out distress signals Wednesday, confirming that the industry faces a serious glut.
Seagate, the world’s biggest disk drive maker, said it will close a drive manufacturing plant in Clonmel, Ireland, and lay off 1,400 workers there.
Quantum, the No. 2 disk maker, warned investors that its third-quarter earnings will be less than half as much as Wall Street has forecast.
Both companies blamed industry overcapacity and falling prices. They join Western Digital Corp., the third-biggest disk maker, which last week said its earnings would be far less than expected because of falling prices.
“What you’re dealing with is an industry that has too much capacity,” said James Porter, president of Disk/Trend Inc., a market researcher. “The U.S. companies are faced with Asian competitors with sharp pencils.”
Fujitsu Ltd., Samsung Group and Hyundai Group each have plans to aggressively win business, Porter said. All the drive makers had built factories in anticipation of those plans but now face a glut that is causing prices to collapse.
Disk drives are the main storage devices of personal computers and store programs, documents and graphics.
Seagate said last month that it is looking to cut costs and will take charges of about $100 million to close some operations, including the Ireland plant.
“It’s not that demand isn’t there but that inventory is high,” said John Monroe, an analyst at market research firm Dataquest. “Distributors are engorged with product. There are probably a couple more quarters of blood on the tracks.”
Seagate will close its Clonmel plant and eliminate 1,100 permanent and 300 temporary jobs. Separately, Seagate will postpone the expansion of a wafer plant in Northern Ireland by about six months.
Milpitas-based Quantum said it expects to report fiscal third-quarter earnings of 25 cents to 35 cents a share. Wall Street had expected the company to earn 74 cents a share.
Although unit shipments are likely to be up, revenue could be flat compared with the second quarter’s $1.5 billion.
“We thought they were doing better in the quarter than that,” said Joel Pitt, analyst at Deutsche Morgan Grenfell in New York, who expected earnings of 68 cents a share.
In last year’s fiscal third quarter, Quantum earned $52.4 million, or 71 cents a share, on revenue of $1.48 billion.
Both companies made the announcements after the market closed. Seagate shares fell 63 cents to close at $21.38 on the New York Stock Exchange. Quantum shares fell $1.06 to $23.81 on Nasdaq before trading was halted.
