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Wall Street smiles on disk drives

Disk drive makers race through the quarter, fueled by strong revenues, unit shipments, and gross margins.

Disk drive makers have the pedal to the metal as they race through the quarter fueled by strong revenues, unit shipments, and gross margins, analysts say.

Driving these elements is the old strong-demand-short-supply condition. "It's been a pretty good year for the storage industry," said David Takata, an analyst with Gruntal & Company. "There has been decent demand, but more importantly, there's been decent pricing stability."

This has led a number of analysts to expect storage companies to come in above Wall Street's earnings estimates.

Company Reporting date Fiscal quarter Per-share estimates
Iomega (IOM) Jan. 28 Q4 $0.16
Quantum (QNTM) Jan. 28 Q3 $0.52
SyQuest (SYQT) by Jan. 31 Q1 n/a
Seagate (SEG) April Q3 $0.88
Western Digital (WDC) April Q3 $1.38
IBM (IBM) April Q1 $2.41
Source: First Call

Giant storage maker Seagate Technology (SEG) is one company that has not been a disappointment.

Seagate posted a 30 percent jump in second-quarter earnings earlier this month, with net profits of $212.6 million, or 91 cents a share.

Analysts had expected the company to report earnings of 73 cents a share, according to First Call.

Quantum (QNTM) is scheduled to report its results tomorrow. Analysts are expecting the company to report earnings of 52 cents a share.

The company told analysts on December 13 to expect earnings of around 52 cents a share, but the analyst range is still rather wide from 63 to 43 cents a share, said Chuck Hill, a First Call spokesman. "We have a hell of a range going when you consider the company put out a guideline."

SyQuest (SYQT) is scheduled to report its first-quarter results by the end of the week, but its outlook is not as bright.

"I'm concerned about how long they can stay in business," Gruntal's Takata said. "They have no mindshare and no marketshare."

The company has reported string of losses, including a loss of $10.4 million or $1.29 a share in the fourth quarter. The company, however, was able to narrow its fourth-quarter loss from its year-ago period as well as its previous quarter. And it posted its first sequential revenue growth in over a year.

Alexa McCloughan, a storage analyst with IDC, said the first half of 1996 was marked with excess inventory and poor financial performance of disk makers.

But then in September, the "light was switched on. Demand started to pick up. It was the classic seasonal buying pattern for consumers and the corporate market was also buying at that time, too," he said. "By the end of the third quarter, demand was in excess of supply, and the drive industry had finally learned not to build a lot of inventory."

Also contributing to the shortage was the shortage of parts even as the industry moved closer to spinning out drives that hold greater capacity on one platter.

And what about the short-term outlook? Analysts said the same conditions that drove the past quarter still exist in the current quarter and may continue through the summer.