Investopedia: Weak PC Demand Weighs On Seagate

Investing in Seagate (Nasdaq:STX) is at least a little like playing chicken with a freight train. While I don't want to entirely dismiss Seagate's potential to transition into new products, technologies and end markets, the fact remains that its core hard disk drive (HDD) market is facing a one-two punch from increasing solid state drive (SSD) substitutions and a switch from PCs to mobile devices, like smartphones and tablets. Although the HDD business is not going to vanish, investors face the difficult prospect of trying to get both the timing and the magnitude of the decline right, as well as Seagate's ability to generate (and/or reinvest) cash during that decline.

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Investopedia: The Back And Forth At Marvell Goes On

This has been a pretty disappointing year for semiconductors in general, so criticism of underperformance at Marvell Technology (Nasdaq:MRVL) ought to be tempered by that reality. Nevertheless, for a company that needs to prove that it can build strength outside of its traditional hard drive controller business, current trends are not encouraging. Marvell does look undervalued, even based on moderate assumptions, so there's potential here, but that potential is tempered by a risk of the stock languishing due to a perceived lack of growth potential on the Street.

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Investopedia: Western Digital Looks LIke A Trader's Dream

Looking at the two major hard drive companies, I'm reminded of an oft-played Vince Lombardi quote - "What the is going on out there?" It was just a few weeks ago that Seagate (Nasdaq:STX) warned the Street that its performance was going to come up short, and here we have Western Digital (Nasdaq:WDC) blowing away numbers for its fiscal fourth quarter and issuing some pretty bold guidance. One way or another, it looks like these stocks are likely to continue to offer up red meat for those inclined to trade.

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Investopedia: Early Returns From Tech Not Looking Good

'Tis the season for companies to issue warnings that calendar second quarter earnings are not going to be up to snuff. With investors already jittery about the outlook for tech stocks, July 5, 2012's warnings from Seagate (Nasdaq:STX) and Informatica (Nasdaq:INFA) are not going to the sector any favors.

Seagate - Yes, It's Still a Cyclical Business
As the hard drive company least damaged by the Thai floods, Seagate has been on something of a roll with its operations. That roll has now noticeably slowed. Whereas the company had once guided to "at least $5 billion" in revenue and gross margin of 34.5%, management warned that actual revenue for the quarter will be more on the order of $4.5 billion, while gross margin will be closer to 33.6%. If there's good news here, it's that analysts were already getting more skeptical and cautious, and had been lowering their numbers. Consequently, the announced miss adds up to less than 10% on the top line and about one point on the gross margin line.

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Investopedia: Seagate - How Much For How Long?

When I last wrote on Seagate (Nasdaq:STX), I said that the huge uncertainties surrounding the hard disk drive market were going to make this an interesting, albeit unpredictable, stock. For most of the last quarter, though, the stock has chopped between $26 and $28 as the bulls and bears battle it out over how quickly hard drive prices will normalize and what normal even means anymore.

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Investopedia: Can Xyratex Change With The Times?

While being positioned as something of a nuts-and-bolts supplier of components to the burgeoning enterprise data storage market might sound like a good thing, Xyratex (Nasdaq:XRTX) is at a very challenging point in its lifecycle. With a major customer potentially moving more and more of their business away from Xyratex, the company needs to start finding new sustainable growth markets.

A Tough First Quarter
Xyratex didn't do much to dispel the worry that its business is facing the risk of substantial erosion in the coming years. Revenue fell 18% this quarter and missed the average sell side estimate by about 7%. In addition, revenue in the enterprise data segment fell 19%, while hard drive capital equipment sales fell 10%.

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Investopedia: Good Or Bad, Seagate Won't Be Boring

Oftentimes it's the case that investors can see which companies are likely to have the most volatile stocks by checking out the range on analyst estimates. The bigger the spread, the more uncertainty and the more potential for positive (or negative) developments. With an enormous range of analyst expectations, a traditionally cyclical industry, and encroaching competition, Seagate (Nasdaq:STX) is not likely to be boring over the next couple of years.

Apres le deluge  
Thailand is home to a variety of electronics manufacturing facilities, and the country was beset by nearly six months of flooding that started in mid-2011. That flooding not only devastated the lives of many Thais, but also had major impacts on the hard drive industry. 

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Investopedia: Is Micron A Call Option On Consumer Electronics?

Once again Micron (Nasdaq:MU) has disappointed investors relative to expectations, but that may not really be all that important anymore. The biggest question is whether the memory space has dug out its trough for this cycle or is about to do so soon. For all of the consumer electronics headwinds, the fact remains that Micron is still one of the stronger players, and demand will rebound eventually. Although Micron is really not a good candidate for buy-and-hold, it may have value as an expiration-free call option on a broader sector recovery. (To learn more, check out Options Basics.)

Do Poor Results Matter?  
Micron posted results that are frankly not very impressive and once again missed average expectations (making it three in a row). Revenue fell 7% from the year-ago level and about 2% from the prior quarter. It wasn't all bad news, though. DRAM revenue was basically flat (as double-digit increases in volume offset double-digit decreases in price), but NAND flash product revenue rose about 6% from the fourth quarter.

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Investopedia: Marvell Starting To Get Interesting

Often one of the tricks to investment success is counter-intuitive investment instincts. In the case of chip company Marvell Technology (Nasdaq:MRVL), it may seem silly to be interested in this name when its storage business is threatened by flooding that has hit its customers, and its wireless business continues to suffer as its major customers wither under competition. All of that may be true, but it ignores the facts that this company is getting more diversified, and still manages to generate attractive amounts of free cash flow.

A Challenging Third Quarter  
Relatively few chip companies are reporting great earnings right now, and that's particularly true for those with high levels of exposure to PCs and Research In Motion (Nasdaq:RIMM). For this quarter, Marvell reported that revenue fell 1% from the year-ago level, but rose 6% on a sequential basis. The company's storage business (chips that control hard disk drives) saw 11% growth from last year and flat sequential performance, while the networking business was up 7% and also flat from the second quarter. Mobile/wireless was more mixed - down 15% from the year-ago period, but up 20% from the second quarter as the company navigates past its RIM issues.

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Investopedia: Is The PC Back From The Dead?

Horror movies have a lot to teach us. That noise is never "just the cat," it's a bad idea to go into the woods at night wearing only underwear, and tape recordings of demonic incantations tend to spoil a weekend in the woods. But perhaps most important is this lesson - nothing is ever truly dead so long as someone can figure out how to make money from it. 

To that end, perhaps the death of the PC has been exaggerated. With encouraging results from Best Buy (NYSE:BBY) and stronger than expected guidance from Hutchinson Technology (Nasdaq:HTCH) - a manufacturer of suspension assemblies for hard-disk drives - it seems like their may be life yet in the market for desktops and laptops.

Best Buy's Earnings - Maybe Not So Good for PCs  
Best Buy certainly had a good quarter, and the market responded accordingly. Whether it was great news for the PC market, though, is not so clear. There is no question that sales growth from computing and mobile phones was the leader for the company, but the problem lies in the details. Mobile phones from HTC, Motorola (NYSE:MMI) and the like continue to be hot sellers, as do tablets from Samsung, Research In Motion (Nasdaq:RIMM) and so on. Unfortunately, then, while Best Buy management's indicated that notebook sales had improved, they aren't necessarily strong. 


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Investopedia: Western Digital Doubles Up On Storage

Consolidation is not uncommon in mature industries, and hard computer disk drives are definitely a mature product nowadays. But even though many pundits believe that flash memory will relegate hard drives to the scrapheap of history, Western Digital (NYSE:WDC) seems to think that day is still a ways off. If you want to make a bet on this company, it'll be up to you to decide whether the company is right about its key product's prospects or not. Let's take a look at some of the data.

Western Digital Buys Global Storage Technologies 

On Monday morning, Western Digital announced that it will acquire Hitachi's (NYSE:HIT) Global Storage Technologies unit for $4.3 billion. Western Digital will pay $3.5 billion in cash (which will be funded at least in part by debt) and 25 million shares. That, in turn, will mean that Hitachi will own approximately 10% of the company. The deal also calls for Western Digital to add two Hitachi reps to its board of directors once the deal closes.

Global Storage Technologies is a relatively small part of a huge enterprise and there is not a wealth of financial data available. That said, Hitachi's HDD business has a revenue run rate right now of about $1.5 billion, so Western Digital is paying a little less than three times sales for the deal.

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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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Seagate Decides To Stay Public

With mergers going off left and right in the tech space, particularly in the storage area, it is a bit of a switch to hear about a deal that does not happen. But that is the case for disk drive maker Seagate Technology (NYSE:STX), which announced after the close on Monday that the board had decided to end discussions of selling the company to private equity investors. 

Where was the Bar?
Although the company had publicly acknowledged some indications of interest in taking the country private back in October, the recent rumors were that potential deals were falling apart as private equity groups balked at the price. There has been no public discussion of what Seagate believed was a "fair price", but it would not be surprising if $20 was the starting point that the board had in mind. After all, even though companies like 3Par ,being acquired by Hewlett-Packard (NYSE:HPQ), and Isilon Systems (Nasdaq:ISLN), being acquired by EMC (NYSE:EMC), are very different than Seagate, there might nevertheless have been an element of "storage is storage" mentality and an expectation from the board of a solid premium. 


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