Tonight, leading hard drive maker Seagate (NYSE:STX) is set to report earnings for the second quarter of fiscal year 2007. Let's spin up our platters and see what they've got in store for us.

What analysts say:

  • Buy, sell, or waffle? Twenty-six Wall Street analysts follow the company. Ten of them want to buy, one wants to sell, and the other 15 are happy to hold the stock. In our Motley Fool CAPS investor community, it's a solid four-star stock on the back of 222 user ratings.
  • Revenues. The average forecast calls for $2.92 billion, 27.1% above the $2.3 billion mark set a year ago. Official guidance brackets that number with a $2.8 billion to $3 billion range.
  • Earnings. Company management expects to make between $0.30 and $0.34 per share, and the analyst consensus again falls squarely in between those endpoints at $0.32. That's down from $0.57 last year.

What management says:
CEO Bill Watkins noted in the last earnings conference that his company stands on solid footing, with "access to virtually every available market in the $30 billion-plus disk drive industry and a strong and growing customer base."

What management does:
Margins took an immediate hit when the Maxtor acquisition closed last May. The part that really troubles me, however, is the fact that revenue growth slowed down in spite of the addition -- Maxtor brought in about $900 million per quarter as a standalone entity. All mergers come with some growing pains, but was this one worth the trouble?

Margins %

7/2005

9/2005

12/2005

3/2006

6/2006

9/2006

Gross

22.2%

23.9%

25.1%

25.1%

23.5%

20.9%

Oper.

9.6%

11.5%

12.5%

13.0%

10.3%

7.3%

Net

9.4%

11.4%

12.5%

12.6%

9.1%

5.9%

FCF/Revenue

28.1%

28.1%

30.0%

30.6%

26.8%

21.6%


7/2005

9/2005

12/2005

3/2006

6/2006

9/2006

ROE

32.2%

32.2%

41.4%

38.9%

21.7%

14.8%

Revenue Growth

21.4%

21.4%

39.3%

32.0%

21.9%

22.6%

Earnings Growth

33.6%

33.6%

229.6%

183.2%

18.8%

(36.5%)
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
Here's some trivia for you: Seagate's real headquarters may be in Scotts Valley, California, but for accounting purposes, the company is incorporated in the Cayman Islands, with all the taxation benefits that location affords.

Back to the mainland -- the hard drive industry has gone through a few years of heavy consolidation, and there are only two serious pure-play companies left. Beyond Seagate and Western Digital (NYSE:WDC), it's a slew of mostly Japanese mega-corporations like Samsung, Fujitsu, and Hitachi (NYSE:HIT). Maxtor, Seagate, and WD are locked in mortal combat over the consumer market, while the others join the fray for corporate and data center accounts.

Seagate's No. 1 task right now is to make some sense out of the Maxtor deal. It's nice to cut down on competition and all, but should the margins hurt this bad? With the imminent release of Microsoft's (NASDAQ:MSFT) consumer version of Windows Vista, Seagate is getting in line with all the other hardware makers hoping for a quick pick-me-up. But that's next quarter. This time, we'll just have to rely on gloomy guidance and endure a slow quarter -- holiday season or no holiday season.

Major customers:

  • Dell (NASDAQ:DELL)
  • Hewlett-Packard (NYSE:HPQ)
  • IBM (NYSE:IBM)

Microsoft and Dell are both Motley Fool Inside Value selections, and Dell is also a Motley Fool Stock Advisor pick. Read all about it with a free 30-day trial to either service.

Fool contributor Anders Bylund holds no position in any of the companies discussed here. You can check out Anders' holdings if you like, and Foolish disclosure has plenty of spare capacity.