Seagate suffers $496M loss, admits to HDD 'execution' problems
Returning to his old job, Seagate CEO Stephen Luzco reported worse than expected financial results last night, adding that job layoffs, salary cuts, and building closings announced last week will save the storage specialist $300 million.
In a conference call with analysts, Luzco admitted that Seagate's execution could have been better during the quarter, when the company's revenues fell to $2.27 billion.
But Seagate also faces tough market conditions. Analyst firm iSuppli predicted last month that unit growth in hard disk drives (HDDs) might be as small as 4.3 percent this year. Seagate has also been stepping into newer solid state drive (SSD) technology.
"I believe we have the right resources in place, but that we haven't executed at the level that we are capable of," Luzco elaborated during the call, pinning the blame mainly on the unexpectedly high costs of focusing on small but high capacity HDDs -- such as the Barracuda 7200.12 desktop drive -- which feature "high areal density."
"After demonstrating sustained areal density leadership through a number of product generations, we decided to manage areal density growth in an attempt to optimize our product portfolio and R&D investment. This decision resulted in products that were less competitive in some markets, as overhead technologies advanced at rates greater than our estimates. Our technology assets, investments and capabilities remain intact, but we have not been efficient in deploying those technologies through the last two product cycles," Luzco said during the call.
"In addition, our internal execution issues were compounded by the macroeconomic environment, which we believe will continue to be challenging through calendar 2009 and potentially into the first half of calendar 2010."
Meanwhile, industry reports have been surfacing lately that many users are experiencing failures of the Barracuda 7200.11 and some other drives in Seagate's Barracuda line-up.
On January 13, soon after the end of the second quarter on January 2, Seagate veteran Luzco -- who is also the company's chairman -- saw his job expand to include the CEO role. Former CEO Bill Watkins resigned, effective immediately.
Last week, Dave Wickersham left Seagate as president and COO. Also this month, Seagate laid off six percent of its work force and instituted company-wide salary cuts. Seagate shuttered a research facility in Pittsburgh and recording media plants in Northern Ireland and Milpitas, California.
Luzco predicted last night that the changes involved in the company restructuring will save the company $300 million.
Seagate's market share slipped two percentage points during the second quarter. The company also posted a net loss of $496 million, as opposed to the $403 million profit reported for the same period last year.
In the call with analysts, Luzco voiced pessimism about the short-term prospectus for the storage market, but he was upbeat for the longer term.
"While we continue to firmly believe that Seagate has a solid future and we view the long-term prospects for storage to be positive, there are significant short-term challenges facing Seagate," he acknowledged, in his prepared remarks.
Luzco also worked as Seagate's CEO during a six-year stint earlier, taking the company public before taking it private again.