Maxtor Muffled

Disk-drive maker Maxtor (NYSE: MXO) beat estimates with strong fourth-quarter results Wednesday afternoon. Unfortunately, the shares had already plunged 12% during the day on Tuesday's dismal report and outlook from Seagate (NYSE: STX).

Adding insult to injury, Maxtor shares fell another 7% to $10 in after-hours trading, after the company issued first-quarter guidance well below analyst expectations.

For the fourth quarter, all was fine. Revenues were up 13%, while earnings climbed to $38.8 million, or $0.15 per share. Excluding special items, net income jumped to $60.4 million from $37.3 million last year's quarter, or $0.24 per share, beating the consensus by a penny.

Maxtor shipped 15.8 million hard drives during the quarter, "reflecting good demand for desktop PCs and Intel-based servers, as well as emerging applications including consumer electronics and midline and nearline enterprise storage." The company also shipped 1.64 million drives to consumer electronics OEMs, compared to Seagate's 1.02 million (less than half the units shipped during the previous quarter).

But Maxtor also forecast revenues of $1 billion to $1.06 billion and non-GAAP earnings of $0.12 to $0.15 per share for the first quarter, which was well below the consensus estimate of $0.20. The company cited the same inventory problems and the resulting pricing pressures that sank Seagate, acknowledging that gross margins would be light.

Expect similar news from Western Digital (NYSE: WDC), which reports its own results this afternoon. Western Digital shares also dropped 14% yesterday on Seagate's outlook.

Last month, W.D. Crotty suggested that Maxtor might be attractive at about these same prices. Yesterday, I suggested that Foolish investing -- buying quality companies in quality industries at good-to-great prices -- means avoiding companies whose pricing power is vulnerable to intense competition.

Maxtor might look like a cheap stock in an industry with clear growth potential, but I think this rule applies here. Sorry, W.D. Investors can do better elsewhere.

Offer your own take on the Maxtor discussion board. Jeff Hwang can be reached via email.