Seagate Sunk! Should You Dive In After It?

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Seagate Technology (Nasdaq: STX  ) took a beating today, down nearly 17% at the end of the trading day. First-quarter guidance came in well short of estimates, even as fourth-quarter results exceeded Wall Street's expectations.

Specifically, the disk-drive maker said that while Q1 revenue would come in slightly above estimates -- $2.9 billion versus $2.84 billion, according to Yahoo! Finance -- adjusted earnings would fall to $0.33 from $0.37 a year ago. Analysts had been calling for $0.44 a share in profit.

What happened? CEO Steve Luczo didn't have much of an answer when pressed. Instead, he talked of matching inventories to customer demands. He's undoubtedly right. U.S. PC shipments fell between 4% and 5% in the second quarter, according to research firms Gartner and IDC.

Apple (Nasdaq: AAPL  ) was the lone exception, and the Mac maker tends to either use flash technology or contract with Asian suppliers for hard drives. And that's when it's not selling tens of millions of iPhones and iPads.

Seagate isn't a major supplier to Apple. Rather, Dell (Nasdaq: DELL  ) and Hewlett-Packard (NYSE: HPQ  ) are the company's only customers accounting for more than 10% of revenue. Neither Dell nor Hewlett-Packard is exactly on fire right now.

What's more, while magnetic drives remain a staple of data center storage infrastructure, large-scale flash technology from STEC (Nasdaq: STEC  ) and SanDisk (Nasdaq: SNDK  ) have become an increasingly attractive alternative. There's no telling how long Seagate's enterprise business will protect profits from an eroding PC market.

Is today's sell-off reflective of a disruptive shift or a buying opportunity? You tell me. Please vote in the poll below and then leave a comment to tell us your thoughts about Seagate's business. You can also add Seagate to your watchlist for up-to-date analysis on the stock as soon as it's published.

Fool contributor Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team. He owned shares of Apple at the time of publication. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Google+ or Twitter, where he goes by @milehighfool. You can also get his insights delivered directly to your RSS reader.

The Motley Fool owns shares of Apple. Motley Fool newsletter services have recommended buying shares of and creating a bull call spread position in Apple. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (3) | Recommend This Article (1)

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  • Report this Comment On July 21, 2011, at 6:13 PM, noggenfloggen wrote:

    Some big money flow in to the stock today but I would be wary of the stock and the market as whole right now with big sell-offs like these and with some even in the market leaders. If you are a trader, an oversold bounce is likely-but not certain.

  • Report this Comment On July 21, 2011, at 6:27 PM, imnotsleeping2 wrote:

    STX might be a good idea long term due to the coming industry consolidation. WDC might be even better as WDC management seems to execute more consistently

  • Report this Comment On July 22, 2011, at 12:49 PM, Ikarruss wrote:

    The problem with STX is akin to buying typewriter stocks in the '80's, much better tecnology is coming fast. They better make something else, even if they are the best at what they do.

    Bad long term idea, even with good management.

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