Seagate Technology (NYSE:STX) shares were down more than 22% to under $16 this morning following yesterday's disappointing Q2 earnings report. In addition to worse-than-expected quarterly results, high inventories and intense price competition led the hard-drive manufacturer to also warn on third-quarter and full-year earnings.

For the second quarter, Seagate saw revenue grow 1.5% year over year to $1.76 billion. But while net income increased 3.5% to $205 million, it fell from $0.43 to $0.41 on a per-share basis, reflecting the company's higher share count. Analysts had been expecting earnings of $0.45 per share.

The company shipped a record 21.7 million disk drives, up 18% from last year's quarter. But here's the key: It shipped a mere 1.02 million units for use in consumer applications. That's down from the 2.25 million units it shipped in the first quarter and the 1.98 million units shipped in the second quarter of last year.

Seagate said that its "decision not to sell certain products at unacceptable market prices" to the company's original equipment manufacturer (OEM) base led to a 1.4 million unit shortfall from its shipment targets. That left Seagate more susceptible to spot market pricing.

Worse, Seagate said that the personal storage device market grew only 3% sequentially, lower than the 8%-10% growth the industry was planning for. As a result, excess inventory led to further price pressure in a space where the company competes with Maxtor (NYSE:MXO) and Western Digital (NYSE:WDC).

With that in mind, Seagate lowered its third-quarter earnings expectation to between $0.20 and $0.30 per share, down from its October forecast of $0.45 to $0.47 per share. The company also said that it won't reach its full-year earnings goal of $1.55 to $1.60 per share.

While some investors may be tempted to snap up a stock that's been cut in half from its October high, Fools know better than to chase companies whose pricing power is vulnerable to intense competition. Given that fact, Seagate is a pretty easy company to steer clear of.

For more reasons why, check out Tom Jacobs' 4 Reasons Seagate Sinks. W.D. Crotty also took a look at Maxtor last month.

Check out the Seagate Technology discussion board.

Jeff Hwang can be reached here.