Seagate's a Victim of Bad Luck

SCOTTS VALLEY, Calif. (TheStreet) -- Seagate Technology (STX Quote) said Tuesday it was closing its Singapore plant and laying off 2,000 workers, despite better-than-expected fiscal fourth-quarter results and signs that the overall storage market is improving.

The hard disk-drive market is tough, to say the least. In 1985 there were 60 hard disk-drive manufacturers in the world. Through industrywide consolidation, that number has dwindled to a handful, primarily because of shrinking profits and technology challenges. The latest move in 2009 was when Toshiba announced it would purchase Fujitsu's HDD business.

Technology advancements of HDDs have been a mixed blessing for the manufacturers in an effort to maintain market share. In the past year, the average capacity of a 3.5-inch ATA drive increased by 45%, resulting in bloated research and development expenses and shrinking operating margins.

In a competitive environment, market share is sometimes also a matter of luck. For example, if your customer is Dell(DELL Quote), and Dell underperforms the market because of its own issues, which may have had nothing to do with you, then you would lose market share because Dell lost market share.

In the case of Seagate, luck turned against it this year because of its mix of HDD products, whereas 2009 is turning positive for Western Digital(WDC Quote).

Seagate has historically maintained a lead in the desktop and the enterprise markets, while Western Digital has focused on non-desktop applications, primarily the 2.5-inch form factor for mobile and consumer electronics. This year both the desktop and enterprise markets are dropping, which is bad luck for Seagate, while the mobile market is rocking and consumer electronics is somewhat positive, good news for Western Digital.