Investopedia: Double Trouble For Seagate Technology

Even in the best of times, the disk drive business has been fiercely competitive and prone to brutal cyclicality. While Seagate (NYSE:STX) has survived long enough to be a leading player in disk drives, the company's future is still under assault. In the short-term, there are ample worries about whether the PC market will have a decent 2011 and survive the inroads made by alternatives like tablets and phones from Apple (Nasdaq:AAPL), Dell (Nasdaq:DELL), Samsung and Research In Motion (Nasdaq:RIMM). Longer term, there is the question of whether conversion to solid state drives will supplant the core of Seagate's business entirely. 

The Quarter That WasFor the here and now, Seagate is posting mediocre performance. The company's fiscal second quarter met consensus and was in line with a prior preannouncement. What's more, this cyclical malaise really did not surprise anybody all that much.

Consequently, there is not so much concern that revenue rose 1% sequentially, but fell 10% from last year's level. Gross margin was a bit more of a concern, though, as the performance was relatively feeble (gross margin declined 1,100 basis points from last year's level). Likewise, operating income was weak, falling by 64% on a year-over-year basis.  

All in all, Seagate's performance was hurt not only by a general slowdown in PCs, but a decision not to compete on price in certain markets. As a result, unit volume declined and the company had less operating efficiency. One small bright spot was the company's non-computer business, where there was some volume strength in drives for applications like DVRs and gaming consoles. 

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