Shares of Seagate Technology Inc. (NYSE: SEG) tumbled 2 1/8 to 27 1/2 Tuesday after the company said lower demand and lower prices for hard disk drives would hurt its fourth quarter results.
After market close Monday, the Scotts Valley, Calif.-based maker of storage drives warned it would miss its earnings target for the fourth quarter, which ends July 2. Seagate, which had previously anticipated a profit of 45 cents a share, now expects to earn between 32 and 37 cents a share.
Deutsche Banc Alex. Brown downgraded their rating from "strong buy" to "buy" Tuesday. Seagate is just the latest disk drive maker to feel the profit pinch. Western Digital (NYSE: WDC) also recently issued a profit warning.
But Seagate is "the leader best positioned to weather the storm" said Robert Cihra, an analyst with ING Baring Furman Selz LLC who still rates the stock a "buy." The disk drive industry has been in "rough shape for over a year," and Seagate's got the diversification and enterprise business to come out on top, Cihra said.
Fourth quarter revenue will be about $100 million, representing a 6 percent decline sequentially, the company said. Seagate had previously said revenue for the period would be hurt by a change in revenue recognition, but on Monday, the company blamed lower-than-expected demand for disk drives for pushing revenue down even further. The company also saw steeper-than-anticipated price pressure for hard drives used with desktop PCs.
The disk drive industry, which historically sees its weakest months during the summer, has been hit hard by a glut of products that has resulted in downward price spirals and weaker demand for just about all hard disk drive makers. PC makers waging price wars with each other have also pushed for lower prices for components and peripherals.
Seagate's fourth quarter earnings announcements is scheduled for July 15.
Since hitting a 52-week peak of 44 1/4 in January, Seagate shares have tumbled to trade in the high 20s and low 30s for the last three months.
Of 29 analysts polled by Zack's Investment Research, seven maintain the equivalent of "moderate buy" ratings on Seagate, five recommend the stock as a "strong buy", and three rate it a "hold".