Let's try a little word association, shall we? Just snap back with the first thing that pops into your head.
Fourth and long?
Upbeat earnings outlook?
What was that last one? Right, you're thinking of Maxtor
What's up with the mixed signals? The data-storage specialist is looking for fourth-quarter revenue to come in closer to $1 billion. Wall Street was looking for $966 million. Earnings before a series of one-time severance, stock compensation, and write-off charges will be at least a dime a share. Analysts were expecting the company to lose a nickel a share.
Despite the rosy outlook, the company still wants to trim its overhead. Eliminating 500 positions amounts to roughly 5% of its total job base. While that may seem like last-minute overkill, there's a reason behind Maxtor's madness.
Hard-disk makers don't get a whole lot of love in the financial community. The drives are considered low-margin commodities, and that's certainly a well-earned distinction. As optimistic as Maxtor is this quarter, it's still looking at pathetic gross margins in the 15% to 16% range.
While the computer industry has been stagnant, Maxtor is enjoying the transition to higher capacity 60-gig and 80-gig hard drives. You can probably thank your MP3 downloading teens for the need to migrate to larger storage devices. However, like all trends, technology gets cheaper, and the pricing advantages whittle away quickly in the drive space. Maxtor knows that even in good times, you have to be a shrewd operator because they are often short-lived.
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