Seagate net income crashes after Maxtor buy


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Seagate Technology, the biggest U.S. hard-drive maker, said Tuesday its quarterly net profit plunged 98 percent due principally to costs from acquiring rival Maxtor.

Seagate also said it planned to repurchase as much as $2.5 billion of its stock over the next two years, after buying back about $400 million of stock in the quarter ended June 30.

The company also said average selling prices fell as personal computer makers cut prices to compete, and it offered a revenue forecast for this quarter short of analysts' expectations.

"We've been very surprised at some of the pricing that some of the people have done in the market as they try to grab share," Chief Executive Officer William Watkins said in an interview.

Net income in the fiscal fourth quarter declined to $7 million, or 1 cent per share, from $280 million, or 55 cents per share, a year earlier. Revenue matched Wall Street expectations, rising to $2.53 billion from $2.18 billion, helped by $279 million of Maxtor revenue.

Seagate said that in the fourth quarter it recorded $146 million of accounting charges related to the Maxtor purchase and about $72 million of Maxtor's operating losses.

Excluding items related to the Maxtor purchase and other exceptional costs, Seagate said it had profit of $241 million.

Analysts, on average, had forecast earnings per share of 38 cents before special items and revenue of $2.53 billion, according to Reuters Estimates.

In other news:

Chief Financial Officer Charles Pope acknowledged on a conference call with analysts that financial comparisons were difficult. "The bottom line is that the Seagate standalone operating results achieved the internal plan."

Seagate, based in Scotts Valley, California, acquired Maxtor in May for $1.9 billion to cement its position as the leading U.S. disk drive maker and reduce costs while boosting revenue. Seagate announced about 6,000 job cuts at Maxtor after the acquisition, or about half of Maxtor's work force.

Seagate, whose main competitors include Japan's Fujitsu and Hitachi, forecast fiscal first-quarter earnings per share of 16 cents to 20 cents before certain items and revenue of $2.65 billion to $2.80 billion.

Analysts, on average, forecast first-quarter earnings before items of 41 cents and revenue of $2.86 billion.

The company said it expects to integrate Maxtor's operations by the end of this year. "We are confident that we will realize synergies sooner than anticipated," Watkins said on the conference call.

The company said average selling prices for Seagate-designed products fell about 7 percent from the quarter ended in March, "at the high end of the normal range for price erosion" and higher than the company's expectations.

For fiscal 2007, Seagate forecast earnings per share, excluding items, of $1.90 to $2.00 on revenue of $11.8 billion to $12.3 billion, compared with Wall Street's estimate of $2.14 per share before items and revenue of $12 billion.

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