Storage Takes the Stage

The storage boom is reflected in the surprise guidance upgrades from Seagate and Western Digital. Earlier this month, Seagate said that better-than-expected demand for storage products in desktops and notebooks, combined with supply constraints in some raw materials, would push revenue to $2.2 billion in the December quarter, up from $1.8 billion in the year-ago quarter.

Earnings would fall between 49 cents and 53 cents a share. Before that, analysts had been expecting $2.07 billion in revenue and 49 cents a share. Seagate, which has beaten its numbers for the past five quarters, tends to offer conservative guidance.

That followed an announcement from Western Digital, which said similar circumstances would boost December-quarter revenue to between $1.04 billion and $1.075 billion, compared with $955 million in revenue a year before. The company raised earnings guidance to between 36 cents and 39 cents a share from the previous range of between 33 cents and 39 cents.

Meanwhile, Maxtor, which didn't change its guidance, acknowledged strong demand for its drives.

Those pieces of news prompted Bear Stearns to raise its ratings on Seagate and Western Digital, and prompted Deutsche Bank and Goldman Sachs to boost their ratings on Seagate. Seagate's stock is up 38% since late October, and it still trades at 10 times its forward earnings. Western Digital, up 35% in the same time period, trades at 11.5 times its forward earnings. And Maxtor hasn't been left out of the fun. It's risen 39% since Oct. 28. Maxtor trades at 466 times its minuscule earnings, but only 0.3 times its sales.

The brighter outlook for hard-disk-drive makers is all the sweeter because the arrival of the iPod nano, which is powered by flash memory, had led many investors to imagine the death knell for old-fashioned disk drives, which are known to die at the worst possible moment. If flash didn't snuff out the market for hard drives, the long-awaited trend of online storage would.

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