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Seagate abruptly lowers Q4 2008 revenue forecast

Twenty days and half a billion dollars gone

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Seagate has announced it now expects to make fewer sales in this quarter because of the recession. Elsewhere in the disk drive business, Western Digital may only want the enterprise part of Fujitsu's hard drive business.

In an 8K filing to the SEC today Seagate said: "Due to lower demand for its products, a more competitive pricing environment and limited demand visibility, revenue for the current quarter is now expected to be in the range of $2.3-$2.6bn. Consequently, operating results are expected to be below previous expectations communicated on October 22, 2008."

In response to this, "the company is accelerating its on-going plans to rationalize production capacity and improve its overall cost structure".

The recession is biting, which is not surprising. Consumer-facing businesses world-wide are seeing customers buying less. In turn, the businesses supplying them are now seeing the knock-on effect and both kinds of business are spending less on IT products and services. That means fewer PCs and servers. If the recession deepens then it's logical to expect businesses of all kinds, notwithstanding data growth, to look afresh at storage array spending plans and reduce them or put them on hold. The result is lower demand for disk drives as well as lower prices to stimulate buyers.

That's what Seagate is seeing and its view has taken on a bleaker tone since October 22nd, just 20 days ago. It said then that the final 2008 quarter should see revenue of $2.85-$3.05bn - quite a decline year-on-year as it pulled in $3.4bn in the final quarter of 2007.

A decline of half a billion forecast revenue dollars in 20 days is an impressive acceleration in recesssionary sentiment.

Western Digital and Fujitsu

Meanwhile, there is a suggestion by Aaron Rakers, a financial analyst at Wachovia, that Western Digital may only be interested in buying the enterprise hard disk drive part of Fujitsu's hard disk drive business with a price in the $300m-$350m area. This would be more affordable to WD than the suggested $600m-$650m for the whole business.

Western Digital is already strong in external, notebook and desktop SATA drives sales and a leg-up into the enterprise via Fujitsu's SAS drives would fit well with WD's existing product line, at an outline level. The future prospects for Fujitsu's Fibre Channel drives would look pretty limited if this happens. There would also be a surge of competition, meaning lower prices, in the non-enterprise 2.5-inch markets as suppliers scrabbled to increase their share of them.®

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