SOURCE: Five Star Equities

Five Star Equities

May 02, 2012 08:20 ET

Western Digital Predicts Softening Market for Disk Drives -- Seagate Shares Dip

Five Star Equities Provides Stock Research on Seagate Technology and Western Digital

NEW YORK, NY--(Marketwire - May 2, 2012) - 2011 was an eventful year for the Data Storage Devices Industry as major floods in Thailand disrupted the production and supply chain of disk-drives. The lack of supply drove disk-drive prices higher and as a result increased companies' profits. But recent comments by Western Digital have many investors believing disk-drive prices will drop back to pre-flood levels. Five Star Equities examines the outlook for companies in the Data Storage Devices Industry and provides equity research on Seagate Technology PLC (NASDAQ: STX) and Western Digital Corp. (NYSE: WDC).

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Thailand is home to a large portion of the world's production of disk drives, flooding in Thailand began in late July and continued through the rest of 2011. Many production facilities were destroyed in the floods, and as a result created a shortage in supply. Seagate was one of the biggest benefactors of the flooding as the company's margins jumped 18 percent for fiscal Q2 and 27.5 percent in fiscal Q3. But Western Digital's fiscal Q3 report suggests that demand for disk-drives is slowing. The company forecasted the total worldwide market for drives this quarter to be between 155 million to 160 million units, well below street expectations of 170 million units. Western Digital CEO John Coyne recently stated that "prices are lower in the June quarter than they were in the March quarter."

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Shares of Seagate fell by as much as 10 percent Friday after competitor Western Digital released its third quarter financial results. Seagate reported revenue for the third quarter of $4.4 billion, gross margin of 37%, and net income of $1.1 billion and diluted earnings per share of $2.48. On a non-GAAP basis, which excludes the net impact of certain items, Seagate reported net income of $1.2 billion and diluted earnings per share of $2.64.

Western Digital shares dropped nearly 15 percent Friday morning. The company reported revenue of $3.0 billion, hard-drive unit shipments of 44.2 million and net income of $483 million, or $1.96 per share, on a GAAP basis for its third fiscal quarter ended March 30, 2012. On a non-GAAP basis, net income was $619 million, or $2.52 per share.

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