Seagate Technology Inc clawed its way back into the black and comfortably exceeded analysts’ forecasts for the third quarter. The company posted a profit of $82m, against a loss of $129m in the same period last year. Revenue for the quarter rose 7.7% to $1.8bn. Excluding the effects of a $60m restructuring charge, third-quarter earnings of $0.49 a share were better than the $0.46 expected. Seagate shares rose 6% after the announcement yesterday to close at $28.1875.
However, a new shadow has fallen over the company in the shape of SEC regulators. The SEC is looking at Seagate’s 1997 acquisition of Quinta Corp and, in particular, the way Seagate wrote off $216m for in-process research and development. In its North American operation, Seagate will follow the example of the software industry and only recognize channel sales when they have been sold on – a move which will hit fourth quarter revenue.
Storage is becoming the kind of commodity product where the ferocity of competition between Seagate and Quantum is likely to offer both companies modest margins in good times and hefty losses when growth slackens. Seagate however, has a strong position at the top end of the market and, having pulled out of the notebook sector, will shortly announce new products to re-enter this market.
