Seagate slips on hard drive sales setback

Seagate’s shares tumbled on Thursday after the data storage maker reduced its quarterly sales outlook amid lower demand for its hard drives.

The California-based group said it expected its revenues to fall 21.9 per cent year on year in the quarter through April 1 to $2.6bn. That came in shy of a previous forecast and Wall Street’s estimates of $2.7bn.

Seagate also said it expected its adjusted gross profit margin to be about 23 per cent in the fiscal third quarter, compared with its previous estimate of 25.6 per cent.

The company blamed the dimmer outlook on weaker than expected demand for several of its products, including so-called mission critical hard drives used by businesses in server applications that require high reliability along with reduced demand for desktop computer products “primarily in China”.

It added that the weakness also came partially as a result of its “decision to not aggressively participate in the low capacity notebook market”.

Seagate remains optimistic that, in the long term, increased demand for hard drives designed to support cloud computing operations will be a boon to the group, said chief executive Steve Luczo.

The industry is facing dramatic change as hard drive capacity becomes cheaper and consumers increasingly use mobile devices instead of personal computers.

The 17 per cent year-on-year decline in hard disc drive unit sales in 2015 was the worst in at least 40 years, Deutsche Bank said in a research note this week.

Seagate’s shares fell 20.1 per cent to $27.11. The shares of Western Digital, a rival, dropped 6.7 per cent to $41.82.

In contrast Delta Air Lines flew higher after reporting a sharp rise in quarterly earnings.

The US airline said its net profits jumped 27 per cent year on year to $946m in the March quarter. Adjusted earnings a share were $1.32, beating expectations of by two cents.

Revenues, however, declined 1.5 per cent to $9.3bn as the effects of a strong dollar and the impact of the terror attacks in Brussels last month were felt.

Joseph DeNardi, an analyst at Stifel, said that, while Delta’s guidance for current-quarter passenger unit revenue — an important metric for airlines — was “slightly softer than expected”, he was “encouraged” by comments from incoming president Glen Hauenstein that the group was prepared to make adjustments to capacity in coming months.

Delta rose 0.9 per cent to $48.49, American Airlines climbed 3.1 per cent to $41.17 and United Continental advanced 2.1 per cent to $56.73.

The Dow Jones Industrial Average gained 0.1 per cent to 17,926.43, while the S&P 500 and the Nasdaq Composite were nearly unchanged at 2,082.78 and 4,945.89 respectively.

The S&P technology and materials sectors were the biggest laggards while telecoms and energy advanced.