You know times are more than tough when an industry’s leader is caught like a roach on its back. That is the position that Seagate Technology (NYSE: STX) finds itself in at the onset of 2009. The implications will not stop with Seagate, as consumer trends challenge the traditional storage business.
Seagate Technology Inc.’s (NYSE: STX) board of directors namedChairman Stephen Luczo as President & CEO, replacing Bill Watkins, who had been with the company for 12 years. This is not the only change. It turns out thatthe company will be undertaking a restructuring later this month that will eliminateroughly 10% of the company’s US workforce. The cuts are in response tothe current environment and many will come from R&D.
Despite analysts looking for losses in the last quarter and thequarter ahead, analysts are still looking for $0.20 EPS forfiscal-June 2009 and $0.61 EPS for fiscal-June 2010. You can startdoing some basic calculations and figure out on your own that the mathprobably doesn’t add up. It is just that more catch-up playing isneeded from analysts.
At almost $5.00, you have to wonder just how bad things are going to beahead for Seagate and for the storage sector. The company would not bedoing this if it thought that today’s woes were just aone or two quarter issue. Shares are down roughly 80% from last year’shighs.
EMC Corp. (NYSE: EMC) recently purchased Iomega to bolster its retail presence just in time for therecession and death of the consumer. Western Digital Corp. (NYSE: WDC)was a huge winner as it was the side-storage product of choice sold inthe Apple stores.
There is an interesting notion that may be coming up now with all thecheap computing. Storage may be the only utility which matters ahead.PC’s are coming with massive amounts of internal storage with 160GBbecoming standard. You can also endlessly store movies and songs onexternal storage devices. Or if you want to save cash you can burnthem to disks.
But there is a flip-side to this notion of "storage as a neededutility" too. You can buy a500GB external hard drive for $149.99 to $179.99 at BestBuy.com, . That cost is almost hard to fathom if compared to prices one or two years ago. You can now evenbuy 1 terabyte (TB) of external storage for $349.99.
And now comes the threat for mobile computing of flash drives. The oldstorage leaders will likely continue to be the new storage leaders inthe future. But the pain being seen might start becoming the norm.Just remember that nothing lasts forever.
Jon C. Ogg
January 12, 2009