Drive makers still suffering despite renaissance

Disk-drive stocks had another rough outing Monday, as plunging profits and intense pricing competition led major brokerage firms to downgrade key stocks.

At a time when most technology stocks are suffering through a distinct cooling period, disk-drive companies are taking the brunt of the fall. In fact, since mid-summer some of the biggest names in the disk-drive manufacturing segment have taken a precipitous drop.

Seagate Technology Inc., which once enjoyed a stranglehold on the lucrative market for server drives, hit its 52-week low Monday when its shares lost $2.19 per share to $24.06. Quantum Corp., Western Digital Corp., and Komag Inc. have met similar fates.

The problem, albeit a bit oversimplified, is that too many companies are cranking out drives and are lowering their prices to capture more market share. This is nothing new for the industry. A similar price war in late 1992 and 1993 almost brought disk-drive stocks to their knees.

"It's a not a question of quantity so much as it is a problem with an unexpected price decline," said Bob Katzive, president of DISK/TREND Inc., a Mountain View, Calif., market research firm. "The lucrative margins companies like Seagate enjoyed for high-capacity drives just aren't there anymore. Everyone wants a piece of the action."

What makes the woes of disk-drive stocks so intriguing this time around is the industry is actually in the midst of a renaissance. Partly driven by the stellar performance of Intel's microprocessors, the modern PC consumer demands a drive that captures, holds, and executes the programs that make technology so compelling these days.

In fact, according to a DISK/TREND report, rigid-drive sales are expected to surge from 105 million units shipped in 1996 to more than 126 million this year. Rapid market expansion and new products are projected to push annual sales to more than $75 billion by the year 2000. This year, manufacturers are expected to rake in more than $34 billion in sales.

For more, read how the industry has evolved.