UPDATE 2-Seagate disappoints on margins, suspends dividend

Mon Apr 13, 2009 4:57pm BST

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Quotes

   

* Q3 margin 7-7.5 pct, vs estimates of around 12-13 pct

* Sees Q3 revenue $2.1 bln, vs estimates $1.86 bln

* Sees Q4 revenue range $1.9-2.2 bln vs estimate $1.86 bln

* Suspends qtly dividend, annual savings $60 mln

* Shares down 6.6 pct (Recasts, adds analyst comment on margins, updates stock activity)

NEW YORK, April 13 (Reuters) - Seagate Technology (STX.O) on Monday posted disappointing quarterly gross margins and eliminated its dividend, sending the computer storage maker's shares lower despite strong revenue.

Seagate said margins for the third quarter ended April 3 were about 7 to 7.5 percent, reflecting weak demand from corporate customers and stronger sales of lower-priced products.

While the company said that was better than it had anticipated, the results fell far short of analysts' expectations of about 12 percent, as did Seagate's forecast of about 11 percent for fourth-quarter margins.

Seagate shares were down 44 cents to $6.21, off about 6.6 percent, after earlier touching a session low of $5.87 on Nasdaq. The decline comes after the stock more than doubled in the past month.

"Despite better overall (hard disk drive) industry trends, we recommend taking profits on Seagate," J.P. Morgan analyst Mark Moskowitz told clients in a note. "After the nice run the stock had over the past month, (Seagate's) margin commentary and expectations for little recovery in the enterprise should disappoint."

BMO Capital analyst Keith Bachman said rival storage company Western Digital might not share Seagate's margin woes.

"Given Seagate's March quarter gross margin was exacerbated by weakness in enterprise drives, we would not expect Western Digital to have the same magnitude of deterioration ... since Western Digital Corp's WDC.N enterprise business is a smaller relative contributor to the bottom line," he said in a note.

Seagate said it expects to post revenue of $2.1 billion for the third quarter, exceeding its own target of $1.6 billion to $2.0 billion and Wall Street analysts' estimates of $1.86 billion, according to Reuters Estimates.

Seagate attributed the results to better-than-expected demand for its 2.5-inch and 3.5-inch ATA drives, although it noted that the total size of the market for corporate products decreased by about 20 percent.

It sees its fourth-quarter revenue outpacing expectations, at $1.9 billion to $2.2 billion. Analysts had expected revenue of $1.86 billion.

Seagate said it has halted payment of its quarterly dividend, a move expected to trim costs by about $60 million annually.

Shares of Seagate were down 10 percent, 68 cents, at $5.97. Western Digital shares slipped 3.7 percent to $21.29 on the New York Stock Exchange. (Reporting by Franklin Paul; Editing by Derek Caney)

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