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Seagate beats expectations

The storage maker reports a jump in earnings that beat analysts' expectations, largely because of rising sales of its high-performance drives.

Seagate Technology (SEG) today reported a jump in net earnings that beat analysts' expectations, largely because of a rise in sales of its high-performance drives.

The storage maker announced net income of $256.8 million, or $1.01 a share, compared with a net loss of $157.5 million, or 78 cents, for the corresponding quarter last year. Wall Street analysts were expecting quarterly profits of 88 cents a share, according to First Call.

"They had a great quarter. They own the high-end market and have basically have taken over the mainframe storage market. There is much more profit to be made at the high end, and that is where their margins and profits are," said Preferred Technology analyst James Stone.

The quarter's results included charges of $24.3 million that were largely attributed to one-time write-offs in connection with acquisition of Holistic Systems. Without the charges, the company would have reported a net income of $1.07 per share.

The company reported revenue of $2.5 billion, up from $2.1 billion for the same quarter a year earlier. Its biggest jump in revenues was from high-performance drives, which jumped to $1.4 billion up from $1.3 billion last quarter. A year earlier, the company received $956 million in revenue from high-performance drives.

Seagate shipped as many 2.5-inch drives as it did last quarter, but some were older models, and that cut into revenues as the company cut prices, CEO Alan Shugart said.

But Shugart added that the small price drop in 2.5-inch drives did not have any significant impact on the company's revenues because it represents only a small portion of the business.

He said that the company lost its position in the mobile market back in 1994 but that Seagate will continue to be a strong focus of the company. "We finally decided that we had to either fish or cut bait, so now we have a new product plan because we want to be in that market," he said. For disk drive makers, it continues to be a seller's market as the demand for disk drives remains higher than production.

"The industry still wants more product than it can get," said IDC Research analyst Alexa McCloughan. "Prices have not eroded significantly. We are looking at a two to three percent drop in prices, while some mobile drives will see a five percent decline, specifically with 2.5-inch products from Q4 to Q1."

Following a 30 percent increase in second-quarter earnings, the company acknowledged some areas that it aimed to improve. "We've done poorly with mobile. We expect to do better. We've reorganized the operation. We will hopefully take that four to six percent [market share] up to the 15 percent range in the next two quarters," Shugart said after last quarter's results.

Rather than inching toward those goals, the company's revenues from mobile drives dropped to $44 million from $50 million the previous quarter. For the same quarter a year earlier, the company received $59 million from mobile sales.

The company also opened a 1 million-square-foot manufacturing plant in Ang Mo Kio, a Singapore suburb. The plant, capable of producing 50,000 disk drives a day, cost $135 million in fixed assets.