NEW YORK (AP) — Weakening demand for PCs and slow global growth are weighing on Western Digital, which makes hard disk drives for computers. Shares shed more than 3 percent late Tuesday morning after the company issued a weak outlook, and stock of Seagate Technology, a competitor, declined as well.
THE SPARK: Western Digital Corp. on Monday predicted adjusted earnings of $1.65 to $1.85 per share on revenue of $3.55 billion to $3.7 billion for the current quarter, its fiscal second.
Analysts were expecting earnings of $2.40 per share on revenue of $4.09 billion for the October-December period, according to a poll by FactSet.
THE BIG PICTURE: The growing popularity of tablets and smart phones are cutting into PC demand. Companies are also curbing spending on technology due to uncertainty over the health of the world economy.
ANALYSIS: "We see demand worsening due to a weaker economy and a (consumer) shift toward tablets and solid-state drives," said S&P Capital IQ equity analyst Jim Yin, who downgraded Western Digital to "Sell" from "Buy" on Tuesday. Solid-state drives store data on flash memory. They are faster than traditional hard disk drives and are used in smart phones, tablets and other gadgets.
Western Digital is "making all the right decisions on factors that can be controlled," such as cutting spending and production, said Citi Investment Research analyst Joe Yoo. But he kept a "Sell" rating, noting the "severity" of the demand decline from businesses and consumers.
SHARE ACTION: Shares of Irvine, Calif.-based Western Digital fell $1.16, or 3.3 percent, to $34.12. The stock has traded in a 52-week range of $24.96 and $45.94, gaining about 10 percent this year.
Shares of rival Seagate Technology PLC also dropped $1.17, or 4.1 percent, to $27.14. The stock has traded between $15 and $35.71 over the past 12 months and up about 66 percent in 2012.