Hard drive specialist Seagate may not be a headline-grabbing gadget maker, but still managed to cause a ripple at an investor reception held at CES earlier this week.
“The overarching theme of the event was that the industry is entering a ‘new normal’ where cyclical volatility may be lower and, by default, profits are generally higher,” explained Goldman Sachs analyst Bill Shope, in a note released on Thursday.
Seagate cited strong demand relative to supply, Shope said, something which has been exacerbated by the recent floods in Thailand.
“The company noted that its relatively advantaged supply position amid the current industry shortages has enabled it to sign long-term supply and pricing agreements with over 10 customers, which should mute both market share and pricing volatility,” added the analyst.
Seagate has certainly been on an upswing lately. Earlier this month the company reported preliminary second-quarter numbers that were higher than expected, and also offered robust third-quarter guidance. As a result, Seagate’s shares surged to a new 52-week high.
Nonetheless, Goldman’s Shope has maintained his ‘neutral’ rating on the company’s stock. The analyst, while acknowledging Seagate’s strong execution, cited the possibility of future pricing pressure. “It remains less clear to us how more normalized production levels from Seagate’s competitors won’t heighten the risk of a classic cyclical correction in hard disk drive pricing at some point in 2012,” he warned. “Furthermore, we remain concerned that structurally lower hard disk drive volumes in PCs and the enterprise will inevitably counter many of the secular advantages Seagate has highlighted.”
Shares of Seagate, which reports its second-quarter results later this month, were up 61 cents, or 3.21%, to $19.30 on Thursday.
Seagate also used CES to showcase what it described as the world’s first 4G LTE mobile wireless storage solution, part of a collaboration with Verizon Wireless.