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Tech Industry

Seagate and Quantum take hits

The storage companies announce a round of setbacks, sending their stocks into a tailspin.

Storage makers Seagate Technology (SEG) and Quantum (QNTM) announced a round of setbacks yesterday that have since thrown their stocks into a tailspin.

Yesterday's news, which came out after the markets closed, followed a round of warnings from disk drive makers in general as they continue to take a beating from the glut of storage devices currently on the market.

In early trading, Quantum's stock fell 25 percent from yesterday's close of 23-13/16, but by the day's end, it regained some of those losses, ending up off 16 percent at 19-15/16. Seagate's stock lost 8 percent from yesterday's close of 21-3/8.

Seagate said yesterday that it will close its manufacturing plant in Ireland in a cost-cutting move. The company hopes the closing will ease pressure on the storage sector, and said it will have to take a charge in the current quarter to implement it.

Quantum, meanwhile, warned yesterday that its third-quarter net income will fall far short of Wall Street's expectations. The company said its quarterly net profits should land between 25 cents and 35 cents a share for the quarter, excluding a $40 million charge. Analysts had expected the company to report earnings of 61 cents, according to First Call.

Quantum last month issued a preliminary warning, noting that it would take a $40 million charge for layoffs and inventory write-offs, as well as for a realignment of its inventory channel.

Aggressive pricing for its disk drives in desktop computers also will take a toll on Quantum's earnings, which will be lower than those reported for the previous quarter, although revenues will be flat until its second-quarter shipments are completed.

"Now, one week into the final month of the quarter, it is clear that the significant negative impact of the continued intense pricing pressures in the distribution channel will outweigh any positive impact of improved channel or product mix in terms of our overall results," Quantum chief executive Michael Brown said in a statement.

Seagate also is getting lean as a result of the storage sector's collective woes.

Seagate said it plans to close its Ireland plant by the first quarter of 1998, once it has finished its final orders for older versions of its storage devices, said Woody Monroy, a Seagate spokesman.

"The operating costs were significantly higher in our Ireland plant, and the products were coming near the end of their life," he said. "To manufacture our newer lines there would have required a significant investment."

The plant is one of 11 that Seagate operates worldwide. The closure will lead to about 1,100 layoffs of permanent employees and 300 of temporary workers. Monroy declined to disclose the size of the charge Seagate will take in its second quarter as a result of the closing.

"A declining price structure, intense competition, and increasing market fragmentation have placed increasing pressure on Seagate's operating performance, as well as that of a number of other competitors," Al Shugart, Seagate's chairman and chief executive, said in a statement.

Like Quantum, Seagate warned last month that its second-quarter performance would be weaker than Wall Street expected. At the time, the company also had noted that it likely would exceed its predicted range of $50 million to $100 million for its restructuring charge.