Western Digital’s Stock Plunges on Profit Warning

Western Digital Corp.’s stock plunged Friday after the disk drive maker said price-cutting throughout the industry will push its quarterly profit far below Wall Street estimates.

The Irvine company’s disappointing earnings projections for its second fiscal quarter also drove down prices of several rivals, including Quantum Corp. and Seagate Technology Inc.

Western Digital’s stock tumbled more than 22%, or $6.63 a share, to $23.63. Quantum dropped $5.38 to $30.19 a share, while Seagate fell $1.56 to $26.25 a share. The three companies control two-thirds of the market for computer disk drives.

The market’s reaction illustrates how competitive pressure within the PC market is putting the squeeze on component suppliers. Experts say it is a cyclical problem for disk drive makers, who consistently make millions of drives sporting the latest technology while trying to sell their inventory of older models.

“Any time there’s a negative announcement in any of the big three manufacturers, you’re going to see it impact all three companies,” said Glenn Hanus, an analyst with Needham & Co. in New York. “These companies share similar problems and successes. Any shortfall Western Digital feels could mean other vendors are feeling similar pricing pressures.”

Western Digital, one of the industry’s largest drive makers, said its profit for the quarter ending Dec. 27 will be only about a third of what analysts were expecting.

The company’s chairman and chief executive, Charles Haggerty, said Fujitsu Ltd. is spearheading a new round of price-cutting on drives used in personal computers.

Right now, drive makers are battling to hit key price points, said Roger Lanctot, a research director for Computer Retail Week, a trade publication.

“There’s going to be pressure on company margins for the next few quarters,” Lanctot said. “But it’s a market phenomenon that can’t last, because these companies can’t afford to give their products away.”

Major technological advances, as well as a boost in the amount of computer information a drive can store, occur about every 18 months, analysts said. This cycle creates volatility in the market.

Western Digital said it expects to earn 27 cents to 30 cents a share for the second quarter, rather than the 83 cents analysts expected. It earned $64.2 million, or 68 cents, on sales of $1.12 billion for the same period last year.

Wall Street quickly revised its projections for Western Digital’s future earnings. At Boston-based First Call, which tracks corporate earnings, five analysts who cover the Orange County firm dropped their expectations from $3.37 a share to $1.78 for the fiscal year ending in June.

“Any time you’re chopping numbers that far out, you’re not really dealing with issues that can be solved immediately,” said Chuck Hill, earnings analyst at First Call in Boston. “This doesn’t look like an easy rebound situation.

Western Digital posted record results in its last fiscal year, earning $267.6 million, or $2.85 a share, more than 2 1/2 times 1996 earnings of $96.6 million, or $1.

On Friday, Haggerty said prices in the U.S. market have fallen significantly in the last few weeks as a result of Fujitsu’s cuts.

Fujitsu officials said they were surprised by Western Digital’s allegations, which they denied.

“We’re flattered that Western Digital would consider us that formidable. Unfortunately, we’re nowhere near them when it comes to market share,” said Doug May, vice president of marketing and distribution for Fujitsu Computer Products of America in San Jose. “We’re just struggling to keep our market share at 8%.”