Seagate Revises 2Q Guidance Upward but HDDs Still in Short Supply

By Thor Olavsrud

Seagate Technology Wednesday revised its fiscal second quarter guidance upward and said it continues to believe hard drive unit demand will exceed supply during calendar 2012 due to severe disruptions in the supply chain caused by flooding in Thailand last year.

However, Seagate (NASDAQ:STX) also claimed that pricing, which has been on the upswing since the severity of the hard disk drive (HDD) shortage started becoming clear, would now stabilize.

"The company continues to believe that during calendar 2012 unit demand will exceed supply and combined with the high growth rate in the demand for raw storage, the exabyte shortage will be more pronounced than the unit shortage, and as a result pricing is expected to remain stable," the company said in a statement Wednesday.

Seagate updated its financial outlook for its fiscal second quarter, which ended Dec. 30, saying it achieved better than expected results and shipped about 47 million disk drives in the quarter. That includes about 700,000 Samsung disk drives, as the company said it closed its acquisition of Samsung Electronics' hard disk drive business on Dec. 19. The company expects revenue to come in between $3.1 billion and $3.2 billion. The Street had been expecting revenue of $2.79 billion, on average. Seagate plans to report its full fiscal second quarter results on Jan. 31.

"The better than expected results for the December quarter are attributed to the company's outstanding operational performance and overall strong execution," said Steve Luczo, Seagate chief executive officer and chairman, in a statement Wednesday. "Due to our best-in-class operations, diversified supply chain and differentiated manufacturing footprint, we continuously optimized our builds for customers during the quarter. This is best evidenced by our company's ability to increase the average capacity per drive shipped quarter-over-quarter to a record 653 gigabytes despite the significant supply chain disruption. These results also reflect the hard work and resiliency of the Seagate teams and our strategic suppliers who are working to help the industry recover from the massive disruption caused by the flooding in Thailand."

HDDs have been in short supply as a result of severe flooding in Thailand last year. HDD factories in Thailand accounted for 40 percent to 45 percent of worldwide HDD production in the first half of 2011, according to research firm IDC. As of the beginning of November, nearly half of the country's HDD production capacity was directly affected by the flooding. Assembly and component facilities were also flooded.

The shortage has had consequences that ripple far beyond HDDs. In December, Intel said it expected its fourth quarter revenues to fall short by $1 billion, primarily due to PC manufacturers lowering their inventory levels because they couldn't stock enough HDDs.

John Rydning, research vice president for hard disk drives and semiconductors at IDC, explained that Seagate finds itself in an excellent position compared with other hard disk drive manufacturers -- the flooding in Thailand did not affect it to the extent it affected other manufacturers.

"Seagate is widely seen as a pretty well positioned relative to other HD vendors in the sense that they were not as impacted by the damage caused by the flooding," Rydning said. "They are able to do quite well in this environment where they can still produce a lot of drives and not be as impacted by HD component shortages."

He added, "We think it's going to take several quarters for industry supply to catch up to demand. With that supply-demand imbalance, it certainly gives the HDD industry vendors, Seagate included, some pricing power."

Thor Olavsrud is a contributor to InternetNews.com, the news service of the IT Business Edge Network, the network for technology professionals.

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This article was originally published on January 05, 2012