Choppy Market Waters Remain for Seagate

The new year is not starting well for Seagate as the storage player reported a net loss of $496 million, or $1.02 per share, and the company had to deal with a firmware boondoggle that resulted in 500GB hard drives being rendered useless.

Sales also fell short at $2.3 billion in revenue, well below initial previous guidance for the quarter of $2.85 billion to $3.05 billion in revenue. Net income had been projected at $34 million, or 12 cents to 16 cents per share.

That guidance was lowered further by analysts just hours prior to today’s call. Barron’s Tech Trader Daily blog reported analyst estimates were down to $2.46 billion in revenue and a loss of 5 cents a share.

The company said it lost two percent of market share in the quarter with a 23 percent decrease in unit shipments.

The company has also been scrambling to help users recover from a disastrous firmware upgrade that turned its 500GB and larger Barracuda drives into paper weights. After numerous complaints on its support boards, Seagate took down the firmware until it could fix it.

The dismal financial news comes a week after Seagate cut nearly 3,000 employees and slashed salaries throughout its organization. Just days before the layoffs it also tossed ousted two top executives and brought back chairman and former CEO Stephen Luczo to take the helm.

Despite the disappointing numbers Luczo’s comments were mostly positive during the earnings call after market closed today.

“We are experiencing one of the most dramatic economic downturns of our generation that is lasting longer than expected,” said Luczo. “We need to make smarter and faster decisions and we’re structuring the business for building liquidity,” he said.

Seagate (NASDAQ: STX) said that its cost restructuring plan, launched in early 2008 with two plant closings and the workforce reductions, will save the company $300 million annually going forward. It also said that a salary reduction effort represents $80 million of the yearly savings.

“The challenges are not just economics but we have the resources to make progress with our portfolio. We just haven’t executed on the level that we’re capable of,” said Luczo.

Going forward, Seagate’s financial predictions aren’t any more optimistic. It expects to sell 110 million units in the third quarter with revenue between $1.6 billion and $2.0 billion. It noted competitive pricing for the expected increase in shipments. Seagate shipped 37 million disk drive units in the second quarter, and 48 million in the first quarter.

“The company will continue to evaluate the demand environment to determine what further actions are necessary to properly align its cost structure with the company’s current view of the macroeconomic environment,” according to a press statement.

Last quarter, the company reported revenue of $3.03 billion and net income of $60 million, or 12 cents per share. In a press statement at the time, Watkins said Seagate had strong prospects despite the economic conditions plaguing the industry.

The vendor also announced it will ship an enterprise-level solid state disk (SSD) product aimed at data centers in 2009 and launch 2TB traditional hard drives into market.

SSD technology, once thought to be too expensive for the traditional business enterprise, hit the mainstream in early 2008 just as enterprises search for faster storage processing systems at a cheaper price, given tighter budgets and bigger data piles to store.