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Seagate beats the Street despite slow sales

The leading hard drive maker releases mixed quarterly results, reporting lower sales and operating profits but beating analysts' estimates.

Leading hard drive maker Seagate Technology released one of its last quarterly earnings statements amid mixed results today, reporting lower sales and operating profits but beating analysts' estimates.

For the period ended March 31, Seagate's net income excluding one-time costs was $46 million, or 20 cents a share, down from 49 cents in the year-ago period. Analysts surveyed by First Call had expected 15 cents a share.

Seagate's sales fell to $1.57 billion from $1.81 billion a year ago.

In a surprise move two weeks ago, Seagate announced that it intended to go private in a complex $20 billion transaction that would create one of the largest privately held companies in Silicon Valley. Storage management software provider Veritas Software will buy back the 128 million shares held by Seagate, while a group of investors led by Silver Lake Partners will take over Seagate's turbulent hard drive business.

Seagate shareholders will receive $5 in cash and slightly less than half a share of Veritas stock for each share of Seagate.

Seagate CEO Steve Luczo said in a conference call that the company expects to file a proxy statement regarding the proposed merger in late April or early May; the company will put the matter to a shareholder vote as soon as possible thereafter.

Earnings were announced after the stock market closed, with Seagate down $2.50 to $49.25. Shares in Seagate, a pioneer in the hard drive business and one of the oldest companies in Silicon Valley, have ranged from $25 to $75 during the past year.

Seagate and competitors such as Maxtor and Western Digital have struggled to squeeze profits out of the hyper-competitive storage business, in which substantial increases in storage capacity and the trend toward budget desktop PCs have shaved profit margins from razor thin to almost invisible.

Luczo said that while "obviously the competitive situation remains intense," it seems to have settled down, with hard drive makers able to squeeze out profits through aggressive management of costs.

"The future will tell whether the supply (and) demand is managed to the point of maintaining this low level of profitability," he said. "Until that happens, I wouldn't be jumping up and down saying something fundamental has changed here."

Including one-time items, Seagate had net income of $136 million, or 58 cents a share. Those figures included the following: a restructuring charge of $49 million; a charge of $105 million for the write-off of in-process research and development in connection with the company's acquisition of Xiotech; a gain of $453 million on the sale of a portion of its investment in SanDisk; and charges related to its investment in Veritas Software of $78 million.

Excluding those items, Seagate posted pro forma diluted net income per share of 20 cents. In the year-ago period, including one-time items, Seagate had net income of $82 million, or 34 cents a share.

Bloomberg News contributed to this report.