Seagate Swells on Demand

The hard-drive maker sails past analysts' estimates and its own outlook.
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Updated from 4:38 p.m. EDT

Seagate Technology

(STX) - Get Report

soared past Wall Street's estimates and its own guidance, posting a 44% increase in earnings and a 42% increase in revenue in its third fiscal quarter.

And despite fears that IT spending is slowing, CEO Bill Watkins said that the company anticipates a strong financial performance throughout the calendar year.

The company posted a profit of $229 million, or 45 cents a diluted share, on sales of $1.97 billion, it announced after the market closed Tuesday. Analysts polled by Thomson First Call were expecting a profit of 37 cents a share on sales of $1.85 billion.

Seagate, which makes hard drives,

continued to grow sales in the increasingly important market for consumer electronics, shipping 4.2 million drives for those electronic devices in the quarter, a year-over-year increase of nearly 300%, and a 24% increase over the previous quarter.

Sales for use in products such as

Apple's

(AAPL) - Get Report

iPod, digital video recorders and game machines now account for 13% of the company's revenue.

But despite a burst of enthusiasm for placing hard drives in high-end cell phones, a potentially enormous market, Brian Dexheimer, who heads the company's global sales and marketing efforts, said those products aren't likely to ship until 2007. Marrying the applications to the hardware, he said during a call with analysts, is difficult. He noted that

Samsung

has produced only a few hundred handsets with hard drives, mainly for demonstration purposes.

Pricing, always troublesome in the hard-drive industry, actually improved -- for Seagate at least. The company's blended average selling prices were up $3, driven in part by higher-margin new products. Gross margins jumped from 20% in the December quarter to 24% in March, and likely will remain in the 24%-26% range, the company said.

Sales of hard drives for use in desktop PCs decreased by 5% (on a unit basis) sequentially for the industry as a whole, and likely will do the same in the June quarter, the company predicted. But considering the normal seasonal pattern of the industry, those numbers actually are better than average, Dexheimer said during an interview.

The company expects the June quarter, normally its slowest of the year, to be strong, with sales and revenue flat with the March quarter. Seagate will provide a quarterly update in early June.

In after-hours trading, shares were up 51 cents, or 3%, to $17.85. Seagate closed the trading day with a gain of 57 cents, or 3.4%, to $17.34.