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Seagate Swings to Sizable Loss

Despite hitting Wall Street's revenue target, Seagate still has plenty of work to do

Storage specialist

Seagate

(STX)

has met analysts' sales guidance but swung to a $273 million loss in its third-quarter results.

Seagate reported third-quarter sales of $2.1 billion, down from $3.1 billion in the same period last year, but just above Wall Street's forecast of $2.01 billion.

The revenue figure did not exactly come out of the blue. Seagate recently

forecast

better-than-expected revenue and gross margin in its preliminary third-quarter results. The Scotts Valley, Calif.-based firm had initially forecast revenue of $1.6 billion to $2 billion, but raised this figure following strong sales of its 2.5-inch and 3.5-inch products.

Seagate nonetheless posted a loss of 56 cents a share, and a net loss of $273 million, compared to earnings of 68 cents a share and profit of $344 million in the year-ago quarter. Analysts had forecast a loss of 45 cents a share.

The storage firm is in the throes of a major restructuring effort and has recently reworked its credit facility. Charges associated with Seagate's restructuring and acquisitions contributed a loss of $54 million, or approximately 11 cents a share, to the third-quarter results.

"I am impressed by the progress we're making in improving our operational performance," said Segate CEO Steve Luczo in a statement released Tuesday. "As a result, assuming a relatively stable business environment, we believe we can improve margins and reach profitability within fiscal year 2010."

Seagate, which competes with

Fujitsu

and

Western Digital

(WDC)

, predicts flat demand for disk drives in the fourth quarter.

The company expects revenue to be approximately $1.9 billion to $2.2 billion, and gross margin as a percentage of revenue to improve by 300 to 400 basis points compared to the March quarter.

Despite citing lack of visibility into the future, Seagate expects a net loss per share between 37 cents and 47 cents, although this includes 8 cents per share of restructuring charges.

At least one analyst warns that it could be some time before Seagate sees a significant uptick in demand for its products.

"We expect demand conditions to remain soft, but stable for the foreseeable future," wrote Jayson Noland, an analyst R.W. Baird, in a recent note, downgrading Seagate to Neutral. "We do not expect demand to accelerate into the second half of calendar year 2009."