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CE drive demand pushes Seagate into the black

Q1 2005 sales beat expectations

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Hard drive manufacturer Seagate exceeded its expectations during the first quarter of its 2005 fiscal year, when it reported today Q1 revenues of $1.56bn, just above its $1.48-1.52bn forecast range.

Q1's revenue figure marks sales growth of 17.3 per cent over the previous quarter, which the company described at the time as "challenging" and led to the loss of 3000 jobs.

Q1 net income totalled $54m (11 cents a share), a big turnaround from Q4 2004's $33m loss, but nonetheless a long way off the $198m (40 cents a share) income Seagate posted in the year-ago quarter on sales of $1.74bn. The Q1 figure includes a $14m gain relating to "the discontinuation of certain benefits associated with Seagate's post-retirement medical plan". That also helped bump up gross margins from 17.1 per cent to 17.7 per cent sequentially.

During Q4 2004, Seagate was hit hard by weakening demand across the HDD industry for desktop and server products. Not so Q1 2005, which yielded "near record" unit shipments, the company said. Seagate shipped just over 21.6m drives, up 18 per cent on the 18.3m its shipped in the previous quarter and almost two per cent on the year-ago period.

Seagate saw unit shipments rise across its enterprise, desktop, notebook and consumer electronics product lines, but the last two saw the biggest sequential growth: 47.2 per cent and 51.6 per cent, respectively. Demand for Seagate's CE drives was boosted by its introduction of a 1in part, which has started cropping up in many of the latest mini digital music players.

Year on year, CE and mobile again showed the biggest growth - 29.9 per cent and 117 per cent, respectively. Those lines' unit shipment totals remain dwarfed by Seagate's desktop unit shipments, though these decline 6.7 per cent year on year. Enterprise drive shipments were up 17.1 per cent.

Looking ahead to Q2, which overlays calendar Q4, Seagate said it expects overall demand across the industry to grow for three of the four categories, CE being the exception. That market will stay flat. Seagate's Q4 2004 to Q1 2005 sequential growth rates are all well in excess of the anticipated increases in each segment's total available market, giving the company strong momentum going forward.

That said, Seagate still describes the market environment as "challenging", and said it will continue to seek to cut costs "which may result in additional restructuring activities and restructuring charges in the future" - an indication of potential further job losses.

Seagate expects Q2 revenue to fall somewhere between $1.58bn and $1.65 billion, and diluted earnings per share to be in the range of 11-14 cents, "excluding any restructuring charges", it added. ®

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