Daniel Del'Re
The resulting mix of products sold had a greater concentration of drives with higher prices and fatter profit margins than anticipated.
Tighter demand means Seagate is in a better position to negotiate prices in coming quarters, says Rich Kugele, an analyst with Needham. So even if prices fall in line with seasonal trends, they won't reach the levels that some investors fear. Kugele doesn't own Seagate shares, but Needham performs investment banking work for the company. Solid-state memory, known as flash, is less of a replacement for hard drives, as has been feared, and more of a complement. Seagate, in particular, has been designing ways to pair the two technologies. Laptops, for instance, can use flash for a quicker start-up time and hard drives for long-term storage. But the future's not all golden. Sales of consumer products, such as DVRs, game consoles and home storage units, are growing faster than sales to businesses. This links Seagate's behavior more closely to volatile consumer spending patterns that depend on employment trends, gas prices and home values. A bigger problem is renewed competition from Asian conglomerates that try to mimic Seagate's success. Asian investors are much more willing to tolerate losses if their companies pick up market share -- a possibility that could spark another fierce price war.
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