Updated from 4:47 p.m. EDT

Weighed down by the costs of an acquisition and stock options,

Seagate Technology's

(STX) - Get Report

fourth-quarter profit dropped sharply year over year, while sales grew 16%.

But more than any of the complicated accounting issues which made it difficult to determine whether Seagate met Wall Street's earnings expectations, investors focused on a price-cutting campaign -- apparently initiated by the company's rivals -- which is hurting margins in a period of already weak sales.

Competitors including

Western Digital

(WDC) - Get Report




have been moving aggressively to win customers of


, acquired earlier this year by Seagate. Even Seagate's CEO Bill Watkins concedes that Seagate will likely lose about half of Maxtor's customers.

But it appears that those companies want to do even better.

"The real issue is whether the land grab tactics are going to continue," said one fund manger with a large position in Seagate who asked to remain nameless.

For now, the market is acting as if the nasty pricing climate will continue; in after-hours trading on Instinet, shares of Seagate were off 99 cents, or 4.8% to $19.71; Western Digital was off 22 cents, or 1.3% to $16.41.

Seagate also said its board has authorized the repurchase of up to $2.5 billion of its common stock over the next 24 months.

The company reported revenue in the quarter of $2.53 billion, of which $279 million was related to sales of Maxtor products.

Net income in the quarter was $7 million, or a penny a share.

A year ago, the company reported revenue of $2.18 billion and net income of $280 million, or 55 cents a share.

The company said the $1.9 billion acquisition of Maxtor entailed a $146 million accounting charge in the quarter and an operating loss of $72 million. The quarter's results included about six weeks of combined operations; the acquisition closed May 19. Option expenses put a $17 million dent in the bottom line.

The company's results did not appear comparable to Thomson First Call estimates, which forecast a 41-cent-a-share profit on sales of $2.38 billion. Also complicating the picture was achange in share count resulting from a share buyback and the new shares created by the Maxtor acquisition. However, in an interview CFO Charles Pope said that it would be reasonable to say that the company earned $241 million, or about 42 cents to 43 cents a share, excluding the cost of options and acquisition-related charges.

The price-cutting at the lower end of the market was so severe, said CFO Charles Pope, "we just walked away."

Meanwhile, demand in the September quarter appears a bit weaker than normal, as customers wait for the confusion over Vista, the next generation of


(MSFT) - Get Report

Windows, and forthcoming chips from


(INTC) - Get Report

Advanced Micro Devices

(AMD) - Get Report

, Pope said.

Worldwide demand for hard drives should increase by about 7% in the quarter, compared with the typical increase of 7% to 10% he said. But for the full year, Seagate's is forecasting an increase of nearly 14% as units shipments increase from 400 million to 455 million.

Looking to the September quarter, the company told investors to expect revenue ranging from $2.65 billion to $2.8 billion and EPS of 16 cents to 20 cents, excluding accounting charges and other costs associated with the Maxtor acquisition.

On the same basis, Seagate expects revenue of $11.8 billion to $12.3 billion and a profit of $1.90 to $2 a share for the full fiscal year.

The company is guiding margins in the September quarter down from 23.4% in the June quarter to 21 or 22% in September. Margins are being hurt by the price war and built in inefficiencies of the transition from a Seagate/Maxtor product line to a purely Seagate line, Pope said.