Investors Back Off of Western Digital

Investors took a step back from Western Digital Corp. on Thursday, after running up its stock price in recent days in anticipation of better-than-expected second-quarter financial results.

Shares of the Irvine computer disk-drive maker slipped 17%, or $1.13, to $5.56 on volume of 8.9 million shares, more than double the daily average over the last three months. The dip followed a 55% gain by the stock since Jan. 13, when shares closed at $4.31.

“The stock got ahead of itself,” said Robert Cihra, an analyst at ING Barings. The bullish news was effectively priced into the stock before the company said Wednesday that its losses in the second quarter were lower than expected.

The company said it expects to report an operating loss of $67 million to $70 million, or 55 cents to 58 cents a share. Analysts estimated a loss of 98 cents a share for the three months ended Dec. 31, according to a First Call/Thomson Financial survey.

The stock was restrained because Western’s results say more about a current industry earnings trend than the strength of the company itself. “The whole sector’s financials are expected to look a lot better” this quarter, says Jim Porter of Disk/Trend.

However, the sector remains highly competitive and subject to ups and downs, as rivals periodically engage in price wars as they jockey for market share and squeeze already slim margins.