Why Seagate Technology Plunged

Editor's note: A Foolish reader points out that Western Digital CEO's pricing comments deserve additional context and relate to long-term agreements; that context has been provided in the comments section following this article. However, we note that Seagate's plunge still appears related to pricing concerns. Please see Anders Bylund's take for a deeper read into Western Digital's earnings.

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Seagate Technology (NYSE: STX  ) have plunged today by as much as 10% after chief rival Western Digital reported earnings that included a cautious outlook on the sector.

So what: Western Digital said it has recovered from the Thailand floods that crippled it last year, which had subsequently led to hard drive shortages throughout the industry. As the supply continues to recover, there could be some downward pressure on prices throughout the industry, which could also hurt Seagate.

Now what: Someone's story doesn't add up, though. Western Digital CEO said that "prices are lower in the June quarter than they were in the March quarter," while Seagate CEO Stephen Luczo had called pricing "fairly stable" just last week when it reported earnings. It didn't help much that Craig-Hallum downgraded Seagate from buy to hold this morning also.

Interested in more info on Seagate Technology? Add it to your watchlist by clicking here.

Fool contributor Evan Niu holds no position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Western Digital. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


Read/Post Comments (7) | Recommend This Article (8)

Comments from our Foolish Readers

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  • Report this Comment On April 27, 2012, at 3:59 PM, mooleyfoot wrote:

    "Shares of Seagate Technology (NYSE: STX ) have plunged today by as much as 10% "

    10%? Really? Try 5%. At least get your facts right!

  • Report this Comment On April 27, 2012, at 4:05 PM, TMFNewCow wrote:

    Low trade today was $27.85 this morning 15 minutes after the open, a 10.4% loss from yesterday's close of $31.09. "As much as 10%" sounds pretty accurate to me.

    -- Evan

  • Report this Comment On April 27, 2012, at 4:38 PM, kdsudac wrote:

    C'mon!

    This quote is taken out of context: Western Digital CEO said that "prices are lower in the June quarter than they were in the March quarter,"

    In reality, this statement was in response to a participant's question and was specific to particular LTAs (long term agreements) made by Hitachi Global Storage, an acquisition that closed this quarter. These LTAs represent a very small percentage of the companies business. The complete question and response is pasted below.

    Richard Kugele - Needham & Company, LLC, Research Division

    Okay. And then just secondly, regarding your comments about Hitachi signing of a few LTAs at lower prices than March., can you give some quantification of just how far below and what markets might have been involved, and more importantly, your ability to perhaps prevent that type of decision-making in the future within the confines of the Chinese regulators?

    John F. Coyne

    Well, I think, I mean, you kind of characterized; that, that might not have been a desirable action. I believe it is a highly desirable action to provide assurance of security or supply to customers and to be competitive in addressing market opportunity, thereby, increasing business with certain customers and securing that business into the future. So while the prices are lower in the June quarter than they were in the March quarter based on the total package offered to those customers, business is highly desirable and significantly accretive to the overall well-being of the business. So we're explaining the dynamics of the current market not indicating any kind of problem.

  • Report this Comment On April 27, 2012, at 8:17 PM, hin25 wrote:

    Well i think for seagate their prices fairly stable is reasonable as their hdd is not really affected by flood....... For western D, which was affected their hdd prices soar and so it is norm for their hdd prices to normalise.....

  • Report this Comment On April 28, 2012, at 7:29 AM, assisgnmeaname wrote:

    Just look at STX's p/e multiple and haircut forward EPS if you want by say 50% (ridiculous for a duopoly plugged into the ever growing demand for reliable data storage, but go ahead)...then consider STX's 25% buyback and lofty dividend...it's a trading like a deep-value stock, yet has aggressive growth upside. What am I missing?

  • Report this Comment On April 29, 2012, at 9:11 PM, steamoil wrote:

    I just don't understand it . The 2 major companies that have the market cornered so to speak in the data storage sector, show decent earnings and sales, plunge 10% or so after those reports are issued. Neither one of them mention doom and gloom going foward. So what's the answer?

  • Report this Comment On April 30, 2012, at 4:42 AM, voxraison wrote:

    This is a classic market mistake. After WDC's eps was disclosed share price ROSE to 47$. And when CEO said demand/supply are in balance, market assumed pricing fall. Erroneously. Since floods prices rose 100-200%. now they have stabilised to 50-70% higher than preflood, giving the industry net margins of 15%. This is a dream once-in-a-lifetime opportunity. I added to my position, now the largest investment in my 20yr career as a fund manager.

    Madness. It made 1.2bn cashflow in the quarter, putting the 12bn mkt cap company on a P/cash of 3.

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