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Seagate's December sales were much worse than feared and the company is expected to respond to revenues falling off a cliff by sending up to ten per cent of its staff after them.

In early December Seagate, the world leader in the hard disk drive market, lowered its quarterly revenue forecast to a $2.3bn - $2.6bn range, from an earlier $2.85bn - $3.05bn one, and announced plans to rationalise its structure and rebalance its costs. This was in response to a substantial fall in quarterly revenues and worsening of demand prospects. As the recession has worsened, Seagate is strengthening its response.

Western Digital, number two to Seagate in the hard disk drive market, announced its own cutbacks, including up to 2,500 job losses, a five per cent cull, in mid-December. Japanese HHD head manufacturer TDK is cutting up to 9,000 jobs after it reported a $304m annual loss. The company's experience mirrors that of Seagate - president Takehiro Kamigama, is quoted as saying: “Starting in November, demand for electronic components in all markets dropped significantly, followed by an even more precipitous fall in December."

In a presentation to analysts CEO Bill Watkins said Seagate knew how to make money with a $3bn quarterly revenue run rate, but had to prepare to make money at a $2bn one.

It now seems clear that Seagate's fourth calendar 2008 quarter revenues will come in under $2.3bn, worse than the company thought. Watkins told Tech Trader in an interview that the channel was dropping inventory levels to a level he has not seen before and that distributors were facing difficulties obtaining credit.

Brian Dexheimer, in charge of Seagate's consumer products, told Reuters at CES in Las Vegas last week that up to ten per cent of the company's staff could be laid off.

A restructuring could involve the closure of plants to reduce product capacity, reduction in research and development spending, and the loss of up to 5,400 jobs. It is expected to be announced later this month.

Watkins thinks that the HDD industry could consolidate to Seagate, Western Digital and Hitachi, with one other Japanese player formed from some combination of Fujitsu's HDD business, which it has been trying to sell to Western Digital, Toshiba and TDK. This indicates that Samsung's HHD business has no future in Watkins' view.

Seagate sees no reason to buy up rivals - it is sink or swim time. ®

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