Estimates up for storage makers

As disk drive storage makers prepare to release their quarterly results in the coming weeks, Wall Street thinks some good news is coming.

Storage manufacturers Seagate (SEG), Quantum (QNTM), and Western Digital (WDC) have recently received positive attention from analysts as firms upped their earnings estimates. Sybase (SYBS) also got a lot of attention but saw more of a mixed bag.

Seagate received seven upward revisions following its fourth-quarter results, according to First Call's director of research Chuck Hill.

Western Digital has had its estimates raised by eight firms this month, and Quantum has seen eight positive revisions since January, Hill said. Fifteen analysts that cover Sybase changed numbers, though not all were up, he added.

For the March quarter, Wall Street is expecting Quantum to report 86 cents a share, Western Digital $1.45 a share, and Seagate 88 cents a share, according to First Call.

"Demand still feels very healthy," said IDC Research analyst Alexa McCloughan. She said 132.5 million drives shipped in 1996, with roughly 30 million flying out the door in the fourth quarter alone.

Analysts said last year the number of units shipped dropped in the December quarter to the March quarter, but that the phenomenon is not expected to repeat itself this year. "Last year we saw units drop from one quarter to the next, so for Q1 to stay roughly flat with Q4 is a good thing," McCloughan added. Pricing has also remained stable from one quarter to the next.

"The industry still wants more product than it can get," she said. "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."

Quantum, Seagate, and Western Digital have been vocal in recent weeks on supporting an enhanced outlook for demand as well as improved visibility, product positioning/broadening, and earnings potential progress, according to a recent research report from Salomon Brothers.

Salomon analyst John Dean remains optimistic about those three companies and expects the March quarter to produce solid earnings announcements, which he said will "reveal a robust marketplace and solid/improving company fundamentals."

A Bear Stearns report released last week said that near-term business conditions remain favorable with most desktop and high-end drives still on allocation, which should have near-term positive impact on margins.

The report said it expects Seagate's March quarter results to exceed estimates.

Last month, several storage companies hit their 52-week highs. Seagate reached a high in February of 56-1/4 and closed yesterday at 45-3/8. Western Digital peaked at 77-1/4 last month but has since dropped nearly 17 points to close yesterday at 60-3/4. And Quantum hit 46 last month and closed yesterday at 40-3/8.

Those companies' stock values have pulled back in the past couple of weeks, like other tech stocks, due to higher valuations achieved toward the end of the December quarter, said Dean.

"Investor anxiety over technology stocks may limit continued volatility near-term, but the prospects for better-than-expected earnings from Seagate, Western Digital, and Quantum could lead to favorable movements as we near April's reporting season.

Meanwhile, the December quarter had several companies posting profits higher than Wall Street's expectations. Seagate reported profits of $212.6 million, or 91 cents a share. Wall Street analysts had expected the company to report earnings of 73 cents a share.

Quantum posted net profits of $52.4 million, or 85 cents a share, while analysts had expected the company to earn 52 cents a share for the quarter.

Sybase reported net profits for its fourth quarter, moving the company back in the black after reporting losses during the previous three quarters. The company posted a net profit of $5.1 million, or 7 cents a share.