Seagate Selloff Probably Stems From Overstock Worries

SAN FRANCISCO -- Seagate (STX Quote) shares continued to fall Thursday, underscoring investors' nervousness about the sustainability of the company's pricing power.

Seagate shares were recently trading down 49 cents, about 1.9%, to $25.43, after closing down nearly 3% on Wednesday.

Views differ on what could be causing the selloff, with some analysts attributing it to worries about a possible hard-disk drive glut in a market where supply-and-demand factors are in a rare -- and possibly tenuous -- balance.

Investors in hard-disk drive makers like Seagate wince at the slightest notion that inventories will build up and depress prices as has happened in the past.

At the moment, however, there are few signs that an oversupply is materializing -- or even likely. In September, Seagate and its U.S. rival Western Digital (WDC Quote) raised quarterly revenue and profit forecasts as strong sales of personal computers, digital video recorders and data storage devices pushes up demand for hard disk drives.

The growing demand has propped up hard drive prices. According to Brean Murray Carret analyst Mark Miller, Western Digital's average selling price fell just 7% over the last three years, vs. a 27% drop from 2001 to 2004.

Brean Murray Carret has not performed investment banking work for Western Digital in the past 12-month period.