Seagate's new CEO faces declining sales, faulty drives

Seagate's earnings report was even more grim than expected following a management shakeup, layoffs and product failures. Possible good news: solid state is coming.

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The bad news keeps coming for disk drive maker Seagate Technology LLC.

Wednesday night, Seagate reported revenue from last quarter of $2.27 billion, which was at the bottom of its revised outlook and a decrease of more than $1 billion from last year. It also lost $496 million, far more than expected. The earnings report follows a string of news in recent weeks of management changes, layoffs, wage freezes and product failures.

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While new CEO Steve Luczo said he's confident Seagate will eventually turn its fortunes around, he painted a gloomy picture through the middle of 2010.

"We're currently experiencing one of the most dramatic economic downturns of our generation," he said on the company's earnings call. "Macro-economic trends are worse than what anyone expected even just a few months ago. There are significant short-term challenges facing Seagate."

Last week, former CEO and current chairman Luczo replaced Bill Watkins as CEO, while chief technology officer Bob Whitmore stepped up to replace Dave Wickersham as president and chief operating officer. That news was accompanied by plans for a 10% reduction in Seagate's U.S. workforce. A few days later, Seagate said it would trim its worldwide staff by 6% -- or approximately 3,000 people -- and cut its top executives' salaries from 15% to 25% and other professional employees' pay by 10%.

In addition, last Friday Seagate confirmed firmware problems were causing failures of its 1 TB Barracuda 7,200 rpm drives, approximately two months after it was revealed that 1.5 TB Barracuda drives were freezing.

Luczo said the restructuring and wage cuts will save Seagate $300 million per year. Seagate also cut its dividend to investors from 12 cents last quarter to 3 cents, which will result in savings of another $175 million over the next year.

Seagate execs didn't address the Barracuda problems on the call, but Luczo admitted to problems over the last two product cycles. He also said Seagate lost market share last quarter.

"We understand that the issues we're facing today aren't solely the result of macro-economic pressures," said Luczo.

Whitmore, who leads Seagate's R&D and manufacturing operations, added: "We haven't been satisfied with the consistency of our product and technology execution."

Whitmore said Seagate remains the market leader in enterprise drives and pointed to recent launches of 7,200 rpm, 500 GB 3.5-inch drives and 300 GB 2.5-inch drives as evidence of progress on the product front.

He said solid-state drives (SSDs) are coming this year. Seagate is behind many competitors in delivering SSDs, although the market has yet to widely adopt them in enterprise systems.

"We're set to deliver our first SSD product into enterprise applications later this year," said Whitmore. "SSDs and solid-state technology are essential to our long-term product roadmaps, and we maintain our investment levels to deliver leading technology."

Another fix for Barracuda drives

Seagate today issued a second firmware upgrade for the Barracuda 7200 drives to help users whose data can not be accessed when the host system is powered on. The upgrade actually fixes problems with a previous firmware downgrade Seagate issued Friday.

According to the Seagate support website, inaccessible data still resides on the hard drive and has not been lost.

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