[opendtv] News: Seagate: Stale No Longer
- From: Craig Birkmaier <craig@xxxxxxxxx>
- To: OpenDTV Mail List <opendtv@xxxxxxxxxxxxx>
- Date: Wed, 20 Jul 2005 08:44:34 -0400
(Note: I replaced the battery in my mini iPOD this morning...it has a
Seagate drive inside. Craig)
http://www.forbes.com/2005/07/19/seagate-turnaround-watkins-cz_eb_0719seagate.html
Seagate: Stale No Longer
Erika Brown, 07.19.05, 4:28 PM ET
SCOTTS VALLEY, CALIF. - Seagate Technology today reported a 60%
increase in fourth-quarter sales to $2.18 billion, while
fourth-quarter net income rose from a loss of $33 million a year ago
to a gain of $280 million. Fiscal 2005 sales and net jumped 21%, to
$7.6 billion, and 34%, to $707 million, respectively, breaking a
years-long string of ho-hum growth.
"This is the first time in six years we have seen such a phenomenal
jump in revenue," says the company's chief executive, William
Watkins. "Revenue has been flat, at around $6.2 billion, for five
years." According to Watkins, the much-needed boost came from
increased sales of disk drives for consumer electronics such as
portable MP3 players and digital video recorders, a radical departure
from the company's mainstays-enterprise, desktop and notebook PC disk
drives.
The company has been turning itself around since 2000, when an
investor group led by Silver Lake Partners bought Seagate's hardware
business in a leveraged buyout for $2 billion. After restructuring
the company, Seagate was re-listed on the New York Stock Exchange in
December 2002. Seagate now carries a market capitalization of $9.2
billion. Watkins, who describes himself as passionate, intense and
aggressive, has been an executive with Seagate since 1996 and was
promoted to chief in April 2004.
Rebecca Runkle, an analyst with Morgan Stanley, had expected the
company to earn 53 cents per share in the fourth quarter on $2
billion in revenue. She has a price target of $23 for the stock by
year-end. Seagate shares closed on July 18 at $19, up a little more
than 10% year-to-date.
"Historically, it would have been about how many desktop or
enterprise drives they could sell," says Runkle, "but Seagate is
proactively exploring alternative applications such as automobiles
and home appliances." (Seagate is an investment-banking client of
Morgan Stanley's. Runkle does not personally own Seagate stock.)
Most tech companies face relentless price pressure, and Watkins has
resisted the urge to cut research-and-development spending, instead
choosing to invest in new technologies at a rate of approximately
$700 million a year, or about 15% of revenue.
His efforts in emerging markets are beginning to pay off. "We
underestimated how quickly people would move to these [consumer
electronics] applications," says Watkins. He says in the near future
small consumer disk drives will come to the market en masse, in
satellite radios and cell phones as well as portable video devices
and global positioning systems.
Watkins says the market for consumer hard drives is less than $1
billion today and that it could reach as high as $11 billion in two
years.
The increased focus on fickle consumers means Seagate will have to
maneuver more quickly. The enterprise and desktop hardware businesses
are completely mature and far less prone to fluctuations. Gartner
analyst John Monroe says the market for consumer hard drives is so
unpredictable that in any given year the industry can ship anywhere
from 30 million units to 180 million units.
However, that shouldn't pose much of a problem for Seagate, says
Monroe. That's because the company has a unified manufacturing
process that can be used for several different types of drives. "The
company can build any class of disk drive on the same manufacturing
line and test it in the same chamber, which gives Seagate more
flexibility to move up or down with market demand. No one else can
come close to doing that now," he says.
Still, investors should be cautious about massive growth predictions
in drives for consumer-oriented gadgets. It is still unclear whether
flash memory, which is cheaper and lighter, will prove to be the
favored mode of data storage in portable devices. Watkins says he's
already cooking up a solution. Seagate is in discussions with a chip
company to co-develop a product that's part disk drive, part flash
memory. The product, should it come to pass, would be used in digital
cameras and other gadgets
Hopefully for Seagate investors, the risks the company is taking in
storage will help the company rack up sustainable growth like the
quarter and fiscal year it just reported.
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