E-Commerce

Seagate to cut costs, work force

The hard-drive maker plans to trim operating costs by about $150 million and shed approximately 2,900 employees.
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By Ed Frauenheim
CNET News.com

In another sign of trouble in the disk drive industry, Seagate Technology said Wednesday that it plans to cut its annual operating costs by about $150 million and trim its work force.

The drive maker said industrywide demand for drives going into "personal storage products"--primarily desktop PCs--is lower than expected for the June quarter. In addition, its market share for drives of notebook computers and other mobile devices could fall. Seagate said pricing in the mobile market has been more aggressive than its previous expectations.

In a conference call, Seagate executives said they plan to reduce the company's worldwide work force of 42,000 by approximately 7 percent, or about 2,900 employees. A Seagate representative said the layoffs will affect a variety of departments in the company. Some employees are taking voluntary retirement packages.

The disk drive industry, a notoriously difficult one in which to succeed, is stuck in a rut of cutthroat pricing and grim profit prospects, according to a recent report by investment firm Credit Suisse First Boston.

June is a critical month, Seagate said. The company's "ability to maintain profitability, excluding any restructuring charges the company may incur, is dependent on strong unit shipments during the month of June and the pricing environment during that period," Seagate said. "Historically, for both Seagate and the industry, the month of June represents approximately 50 percent of the unit shipments during the quarter."

Seagate's cost-cutting plan will include a charge in the current quarter of about $50 million. The company said its cost reduction actions "will not impact current product introductions and will be largely implemented by the end of the calendar year." What's more, the company said it is "actively evaluating additional opportunities to reduce its cost structure."

The company expects to make a series of product announcements over the coming weeks that address existing as well as emerging storage markets.

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