Seagate profits slip after price fight retreat

Seagate shipped more drives in its latest quarter but earned less profit as it took rare earth cost increases on board and walked away from price competition. Amazingly it could overtake Western Digital next quarter though.

It reported fiscal 2012 Q1 revenues of $2.8bn (£1.75bn), more than the year-ago quarter's $2.7bn (£1.69bn). It shipped 50.7 million drives, up from the 49.22m of a year ago, and made profits of $140m (£87.6m), less than the year-ago quarter's $149m. The quarter ended on September 30, 2011.

Seagate seems to have faltered slightly: it underestimated its total addressable market in the quarter, assessing it at 165 to 170 million drives, giving Seagate an expected $2.9bn revenue. In the event it was 177 million drives and Seagate only scooped $2.8bn.

CEO and chairman Steve Luczo said in the earnings call: "We lost approximately three points of market share on the September quarter." There were three reasons given: deciding not to compete on price for mission-critical drives, raising notebook drive prices which depressed demand, and lost business in the Asia market due to high prices.

He said rare earth price rises prompted Seagate to try and add temporary surcharges to affected products, but: "Our effort to pass through temporary rare earth surcharges to our customer to offset these cost increases was largely unsuccessful due to aggressive pricing from a competitor in the mission-critical market." El Reg thinks that was Hitachi GST.

Higher capacity product ramps

Luczo said delays getting higher areal density drives into production were sorted, and confirmed that a 1TB/platter desktop drive [Barracuda] is coming: "The one-terabyte-per-platter 3.5-inch desktop drive lagged behind our initial plans and is now beginning the volume transition. We expect to ship millions of units on this platform by the end of the quarter."

As well as this product transition Seagate is moving to 300GB/platter 2.5-inch Savvio 2.5-inch drives and an aggressive production ramp is beginning. Another six product transitions are underway, meaning, we understand, that other drives are moving to the new areal density levels.

Samsung acquisition

He confirmed that the EU had blessed the Samsung acquisition and provided an integration timescale: "We expect to begin integration of Samsung's HDD business during the March 2012 quarter and to complete the operational integration by the end of the calendar year."

"Importantly, upon completion of the acquisition, our product portfolio will include a market-leading notebook product [SpinPoint M8] from Samsung that delivers 500GB-per-platter in one and two disc configurations. We believe this is the industry's leading notebook platform, shipping approximately 4 million units in the September quarter."

Seagate's Momentus is running at up to 375GB/platter currently.

Overtaking Western Digital

The outlook for the next quarter is uncertain due to the deadly and destructive flooding in Thailand, which caused component constraints. Seagate expects to ship 40 to 50 million drives in the quarter. It's a complex matter because there is a multi-tiered component supply chain with suppliers variably affected by the floods, which makes the situation volatile.

That 40 to 50 million figure compares to WD thinking it can produce 22 to 26 million drives in the same period. Western Digital shipped 58 million in the third calendar 2011 quarter, earning revenues of $2.7bn. It could earn half that or less in the December quarter, while Seagate earns around $2bn. What a tantalising prospect, Seagate overtaking WD to regain HDD industry leadership. ®