The Tech Recession Takes Its Toll

Looks like I was right. Disk drive maker Seagate (NYSE: STX  ) is the tech recession's next victim.

Yesterday, the company said it had replaced its two top managers, CEO Bill Watkins and COO David Wickersham, and announced a 10% workforce reduction. Chairman Stephen Luczo will assume the top job for now.

What drove the change? Nothing, if you believe the company's press release.

"Seagate is a strong company and we are making measurable progress toward regaining our longstanding product leadership position across all markets," the release quotes Luczo as saying. "I look forward to working closely with Seagate's talented employees around the world to build upon our success and accelerate the improvements we are making in our business."

There's an element of truth to this. I went with Seagate for a replacement when the hard drive in my wife's PowerBook failed recently. Quality matters, and Seagate is top of the line, as far as I'm concerned. Unfortunately, the aftermarket for disk drives is too small to be a growth driver for Seagate. Few consumers opt to refurbish PCs; they'd rather replace them.

Creatively destructive
Laptop installations are a different story. Notebook PCs outsold desktops for the first time this past quarter, yet Western Digital (NYSE: WDC  ) and Hitachi (NYSE: HIT  ) , not Seagate, captured much of the growth, according to researcher iSuppli.

Seagate also should have been an early innovator in durable solid-state drives, which protect data better than their optical or magnetic counterparts. Instead, it stuck to its core product line, leaving much of the hard work to Intel (Nasdaq: INTC  ) , which is now positioned to take advantage. Both Apple (Nasdaq: AAPL  ) and Sony (NYSE: SNE  ) offer laptops with solid-state drives. Seagate, naturally, supplies drives for neither.

Color our 125,000-strong Motley Fool CAPS community disappointed. Just before Christmas, they upgraded Seagate to five stars. The New Year brought a downgrade:

Metric

Seagate

CAPS stars (5 max)

****

Total ratings

943

Bullish ratings

897

Percent Bulls

95.1%

Bearish ratings

46

Percent Bears

4.9%

Bullish pitches

150

Bearish pitches

8

Data current as of Jan. 13, 2009.

Can't say I blame them. I'm rooting for Seagate, but until it makes like Palm (Nasdaq: PALM  ) and reclaims its innovation mojo, I don't see this stock beating the market.

But that's my take. I'm more interested to know what you think. Would you buy Seagate at these prices? Let us know by signing up for CAPS today. It's 100% free to participate.

Get your clicks with related Foolishness:

Apple is a Stock Advisor selection. Intel is an Inside Value pick.  The Fool owns shares and covered calls of Intel. Try either of these Foolish services free for 30 days, with no obligation to subscribe.

Fool contributor Tim Beyers had stock and options positions in Apple at the time of publication. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool. The Motley Fool is also on Twitter as @TheMotleyFool. Its disclosure policy is so down, it's up.


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