Seagate points to higher hard drive prices

Summary:Seagate upped its fiscal first quarter earnings projections by 50 percent as hard drive prices increased amid strong PC demand. That's great for Seagate.

Seagate upped its fiscal first quarter earnings projections by 50 percent as hard drive prices increased amid strong PC demand. That's great for Seagate. For the PC buyer the news may not be so hot.

After market close Tuesday storage giant Seagate said it expects revenue of $3.15 billion to $3.25 billion and net earnings of 57 cents a share to 61 cents a share. Excluding charges Seagate expects earnings to be about 62 cents a share to 66 cents a share.

Seagate had been projecting earnings of 40 cents a share to 44 cents a share excluding charges on revenue of $2.9 billion to $3 billion. Net earnings including charges were projected to be 35 cents a share to 39 cents a share. These projections were just made a little more than a month ago and analysts were expecting first quarter earnings of 43 cents a share. So what changed?

The company noted the following:

In a nutshell, Seagate is benefiting from stronger than expected PC sales, better pricing and higher margin products. The big takeaway appears to be strong PC sales, which account for 75 percent of Seagate's total units, according to Robert Baird analyst Daniel Renouard.

Renouard adds that Seagate is benefiting from mobile computer sales as well as higher capacity drives. He expects Seagate to continue to perform well given its relatively low inventory and "tight industry supply." These factors also bode well for Western Digital.

Add these items up and you get a picture of PC components that's much tighter than it was just a few months ago. Apple, Dell and HP have all benefited from lower component costs of late. HP's most recent quarter was stellar. Apple has indicated that it expects component prices to rise. In the end, these costs may be passed along to you.

JP Morgan analyst Mark Moskowitz sizes up the landscape as it stands today:

"Multiple drivers stand behind nascent HDD optimism. Our conversations with industry contacts indicate that the improving trends in HDDs are resident more in traditional compute. In other words, there appears to be sturdy demand trends across desktop, notebook, and enterprise drives. On the consumer front, in contrast, PVR/DVR, 2.5-inch, and 1.8-inch drives remain in a holding pattern."

Other analysts note that Seagate is operating at full capacity.

Last night's developments were great news for Seagate. But as a technology buyer you have to wonder if you're losing some pricing power.

Topics: Hardware, Apple, Hewlett-Packard

About

Larry Dignan is Editor in Chief of ZDNet and SmartPlanet as well as Editorial Director of ZDNet's sister site TechRepublic. He was most recently Executive Editor of News and Blogs at ZDNet. Prior to that he was executive news editor at eWeek and news editor at Baseline. He also served as the East Coast news editor and finance editor at CN... Full Bio

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