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Flash Foils Western Digital

The hard-drive maker sees seasonal softness ahead and inventory in the 'manageable range.'

Western Digital

(WDC) - Get Western Digital Corporation Report

took another step to ratchet down investors' expectations for fiscal fourth-quarter results, reminding them Monday that demand for its primary product, hard-disk drives, typically weakens in the quarter ending in June and that this year will be no different.

In a document filed with the

Securities and Exchange Commission

, Western Digital said that it is relying on sales in June to overcome "seasonally soft" demand and pricing pressure.

In April, the company issued

fourth-quarter guidance below analysts' mean estimate.

The document also described a new product line and plans to expand Western Digital's manufacturing capacity.

Western Digital's stock has tumbled in 2007 on worries that makers of consumer-electronic devices will replace its hard drives with so-called flash memory storage devices.

Shares began to rise in April, helped by strong sales of desktop and notebook PCs with hard drives, but are still 18% below their December level.

Flash memory doesn't need power to retain information, and it is less sensitive to external damage than are traditional memory devices. These qualities make flash attractive for mobile devices such as notebooks and digital music players, which are easy to drop.

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Western Digital's chief rival,

Seagate Technology

(STX) - Get Seagate Technology PLC Report

, is also

languishing under the cloud of flash.

Western Digital entered the market for mobile computing devices in 2005. In the past quarter, shipments for notebooks rose 165%, vs. 50% for consumer electronics and 16% for desktops, the largest revenue-generating product line for the Lake Forest, Calif.-based company.

As pricing pressures have set in, Western Digital's margins have taken a hit. Gross margins shrank from 17.8% to 15.7%, well below the company's guidance of 17%. Analysts expect fourth-quarter revenue to increase 22% to $1.3 billion but earnings to fall 5% to 36 cents a share, excluding one-time items.

In general, analysts agree that Western Digital has managed its inventory levels and resisted the temptation to slash prices -- and profit -- even further in order to gain market share in memory for mobile devices.

The company said Monday that inventory levels in the distribution channel are "within the long-stated manageable range of 4 to 6 weeks."

But at the same time, Western Digital is planning to increase its production capacity. It announced plans to spend roughly $400 million between 2008 and 2011 to expand existing wafer fabrication plants and build new facilities.

Western Digital also unveiled a new line of notebook hard drives that run at lower temperatures and consume less power, in line with industry trends.

The company's stock closed down 16 cents, or 0.9% to $17.65, Monday but rose 13 cents in after-hours trading.