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Seagate loses $3bn in a year

But market is turning up

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Seagate lost $3.09bn in its fiscal year to the end of June, with revenue plummeting 23 per cent to $9.8bn. In its final 2009 quarter it lost $81m, on revenue 19 per cent down at $2.35bn, compared to a profit of $160m a year ago.

The bare numbers are horrible but the outlook is much better.

The company spent $106m on restructuring and allied activities in the quarter. A six month cost-reduction and restructuring programme is showing results. Steve Luczo, Seagate's CEO who took back the reins from the ejected Bill Watson at the beginning of the year, said: "The overall organizational, operational, technical and product progress we have made during the last six months is reflected in our financial results for the June quarter and demonstrates meaningful progress." He also added: "We are also seeing signs that the storage markets are improving." He does not think this is due to inventory build-up in the channel.

The company's outlook is for first fiscal 2010 quarter revenues of $2.4bn - $2.6bn, higher than previous guidance of $2.35bn - $2.5bn. Seagate hopes to improve its margins in the quarter by 200-350 basis points.

These are pretty important numbers. The gross margin in the quarter was 17.6 percent, with previous guidance indicating about 15 percent. Seagate is now hoping for about 20 per cent next quarter, an increase from previous expectations of 18 per cent.

However, it warned that "the September quarter outlook does not include the impact of any potential new restructuring activities, future mergers, acquisitions, financing, dispositions or other business combinations the company may undertake."

Stifel Nicolaus analyst Aaron Rakers is hopeful, pointing out: "The company's transition to new areal density platform (250GB/platter 2.5-inch and 500GB/platter 3.5-inch) drives is progressing." He reckons the company had approximately half of its production from these new areal densities and is looking for 80 per cent in the next quarter. Luczo said: "For our long term growth we have redeployed our technical resources to refocus on areal density leadership across all of our products."

Seagate's Robert Whitmore, EVP and chief technology officer, said: "Launching new products at the next areal density point continues to be an important priority as well and several significant milestones were achieved in the June quarter. We delivered our aerial density leading 2.5-inch two disk 640 gigabyte drive (320GB/platter) to our US retail partners and will continue to ramp that product within this quarter. "

Seagate thinks it's important to have capacity leadership in retail products, for shelf appeal, and it hasn't had that over the past couple of years, which weakened its retail business.

Talking of discrete track recording and bit-patterned media, areal density improvement technologies slated to succeed the current perpendicular recording technology, Whitmore commented: "We see conventional perpendicular recording expanding for the next several generations. We’re making investments so that we’ll be ready for the conversion but we don’t see that for a number of years in front of us."

Turning to solid state drives, he said: "Our solid state product development is on track and we remain focused on delivering our first enterprise SSD later this calendar year. We are fully engaged with our customers and supply chain partners and remain committed to delivering solid state storage devices with the performance and reliability this market demands." The first deliveries will be to OEMs, with much of 2010 taken up by qualifications by the OEMs.

In summary Rakers said: "Ample upside remains in this restructuring story that looks to benefit from an improved underlying demand environment," particularly in the enterprise market.

The recession appears to be bottoming out and even turning up for Seagate, although the way ahead still looks murky. Profitability hopefully beckons. ®

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