Seagate takes $300m charge

Seagate Technology Inc. said its second-quarter loss will be worse than expected after the disk-drive maker takes a $300 million charge for restructuring and other one-time charges related to the closing of a manufacturing plant in Ireland. Seagate's stock closed down $1.25 per share to $20.63 Wednesday prior to the announcement.

But it gets worse.

Seagate was already facing a $100 million charge in the quarter related to another restructuring program. Originally expected to post a profit of 24 cents per share, the company now faces a loss in the neighborhood of $1 per share in the second quarter.

Also, company officials said pricing pressure and weakness in demand for its disk drives will translate into lower-than-expected revenues in the quarter. Total revenues for the quarter are now expected to be about $1.65 billion, with $1.5 billion attributed to drive operations.

In the year-ago quarter, Seagate posted a profit of $212 million, or 84 cents per share, on sales of more than $2.4 billion.

"It's not terribly unexpected but it's not good either," said Jim Stone, an analyst at Preferred Technology Inc. "These disk-drive guys always go through the same cycle. They overbuild and then close down their plants and cut each other's throats. A loss this size could be somewhere around 90 cents per share or more."

In December, Seagate announced it was closing its manufacturing plant in Ireland and would lay off 1,400 employees.

"You can't forecast these stocks," Stone said. "I've been following this industry for more than 40 years and it's the same story every three or four years. I don't know how to make money on them now."

Company officials said $250 million of the $300 million charge will be absorbed in the second quarter, with the remainder taken in the third quarter.

The news is just the latest blow to an industry that's struggling with over-capacity issues, intense pricing competition, and dramatic economic unrest in Asia.

It's not a lack of demand that's plaguing major disk-drive vendors such as Seagate, Quantum Corp., and Western Digital Corp. In fact, DISK/TREND Inc., a Mountain View, Calif., market research firm, predicts that worldwide sales this year will top $34 billion. Expansion and new products should push sales above $75 billion by the year 2000.

"PC sales continue to grow at about 15 percent to 20 percent a year," Stone said. "And every one of those machines has a disk drive in it. But when the prices continue to drop at 30 percent to 40 percent a year, this is what you get."

Seagate's announcement comes two months after major brokerage firms downgraded the company's stock in anticipation of lackluster second-quarter earnings. The same was true for Quantum and Western Digital, both of which have issued profit warnings in light of diminishing profit margins.

In fact, Seagate's once-lofty status as the elite high-performance drive manufacturer has declined as much as the company's stock price. In its first quarter of fiscal 1997, Seagate lost $240 million, or 98 cents per share, on sales of $1.8 billion. In the same quarter of 1996, Seagate posted a profit of $129 million, or 53 cents per share, on sales of more than $2 billion.

After one of the most prolific years in market history, Seagate's stock has slid more than 40 percent.

Seagate will announce its second-quarter results on Jan. 20.