We Stayed Out of a Price War - Seagate

Seagate (STX) CEO Bill Watkins says the opportunity to jump in a price war came up in the first quarter. And he decided to stay on the sidelines.

That’s how Watkins explains the company’s March quarter revenue shortfall. (See transcript.)

In a Thursday afternoon interview with Tech Trader Daily, Watkins said that “things got dicey” in the quarter for the drive makers, “and people started doing deals,” in particular for notebook drives. Watkins says he decided not to get into a price war to maintain market share - he says that Hitachi and Western Digital (WDC) were cutting prices to gain volume, and that he declined to participate. The result, he says, is that the company shipped about 2 million fewer drives in the quarter that he had expected as recently as the beginning of March. He figures the industry as a whole shipped 3-4 million fewer drives in the quarter than had been expected.

But the company did manage to meet the Street’s EPS target, he notes, thanks to an improved product mix. Watkins says he could have picked up more revenue in the quarter - but at the expense of 2-3 percentage points on the gross margin line.

Meanwhile, Watkins conceded that the company wasn’t where it had hoped in the retail channel in the quarter, due to two factors. One, he says the company did not have high enough capacity external drives, something he says has not been fixed. And two, he says the company has inventory issues. “We had poor execution in having the right product and the right inventory,” a problem he blames on “poor forecasting and just poor management.”

Seagate shares continue to fall today, down $1.38, or 6.84%, to $18.79 at midday.

Comments

[hotel guy:]

As an upper level manager in hotels, I know about price wars. We call it heads in beds and when times are slow, hotels use varying strategies to try to fill their rooms. The right mixture of occupancy and rate equates to revpar. The higher the revpar, the higher the potential profit. If offering lower rates doesn't equate to higher bottom line profits, it probably doesn't make sense.

2008 Apr 16 01:23 PM

[BotanicusRex:]

Strange. Seagate used to jump right in the price wars (and often started them)... and usually came out on top in the long run.
Watkins' strategy to sit on the sidelines and lose market share is wrongheaded and that plus getting kicked in the hi-cap ext market will have a very detrimental comparative effect on long term share prices. ...so what else is new at Seagate LOL

2008 Apr 16 01:45 PM