Disk Drive Maker Seagate Files to Go Public

Reuters ^ | October 11, 2002 | Peter Henderson

[Willie Green]

For education and discussion only. Not for commercial use.

SAN FRANCISCO (Reuters) - No. 1 computer hard disk drive maker Seagate Technology Inc. on Friday filed to raise as much as $1 billion in a proposed initial stock offering that would partially reverse the deal two years ago which took the company private.

Since going private, Cayman Islands-based Seagate has extended its share of the market for high-end drives to around 60 percent as well as competing for the top spot selling drives for personal computers.

"The company is performing very well right now -- which is another risk for investors," said Mark Miller, a former Seagate engineer and now an analyst at Hoefer & Arnett.

He complimented the company's management and technology but said investors should be wary of the sector's cyclical nature and ask whether the company could keep its market lead.

"You never want to buy the stock in the best quarter it ever had," he said.

Seagate said earlier this week that it shipped a record 16.7 million drives, and took in $1.6 billion in revenue in the quarter ended Sept. 27. Net income more than tripled to $110 million from $34 million in the year-ago quarter.

The hard disk drive industry is very competitive and has suffered during the economic downturn, although new uses for data storage, such as digital television recorders and computer games are increasing the market.

Seagate did not say in a preliminary prospectus filed with the U.S. Securities and Exchange Commission how many shares of common stock it plans to float nor estimate a price per share.

It also did not specify a date but indicated the offering was planned for this year.

The company also said current shareholders, including Texas Pacific Group, August Capital, Goldman Sachs & Co. and J.P. Morgan Partners and management, would maintain control, although some investors would also sell their shares in the offering.

Investors and management of the hard disk drive operations took Seagate private for about $1.8 billion in November 2000 in a complex transaction that essentially finished splitting the storage hardware and software assets.

Morgan Stanley and Salomon Smith Barney were listed in the prospectus as the lead underwriters. Goldman, Sachs & Co.; JP Morgan; Bear, Stearns & Co. Inc.; Lehman Brothers; Merrill Lynch & Co. and Thomas Weisel Partners LLC will assist in the offering.

Seagate said it would use proceeds from the IPO to pay for its deferred compensation plan and general corporate purposes, which could include working capital, research and development, sales and marketing, capital spending, among others.

It will consider listing on the New York Stock Exchange or Nasdaq but it did not provide a proposed symbol.

[Willie Green]

Related thread: Losing your life savings to leeches

[Karsus]

This might not be such a good investment. They just lowered they warranty on almost all the drives they sell from 3 years to 1 year. What does that tell you about their faith in what they sell?

[RLK]

If I were the owner of a company making an outstanding product and making money hand over fist, I don't think I would be eager to sell stock in it. Something smells here.

[PokeyJoe]

It tells me that they are trying to change the margin on every drive that they sell in a competitive marketplace. They are challenging others to do the same. They must be selling enough volume to support the change - as others will have to face the music if they do the same.

by the way, that change only impacts Retail drives.

If you buy a new Dell with a 3 year all inclusive warranty, the hard drive is still covered under the OEM warranty. Dell will still replace the Hard Drive under the next-day service program.

A good reason to buy a new computer with an extended warranty. It's only 99 bucks extra. =)

[NapaCA]

Friends of mine who once worked there called the company SlaveGate...

[river rat]

Since HDDs have become a commodity, rather than a high priced device....it seems rational to drop the warranty period.

You can't buy many complex electro/mechanical devices for $100 to $300 that come with a three year warranty.

Warranty costs are always figured into the selling price. It's a case of pay me now or perhaps avoid paying me later.

Semper Fi

[ikka]

Since going private, Cayman Islands-based Seagate

So how much do they pay in US taxes? Is this another Enron-like offshore company deal?

[Honorable]

The company had a round of layoffs in August '02 in anticipation of filing for the IPO. They wanted to dress up their balance sheet and bring their costs in line with the industry. They have been performing on all cylinders and have been profitable for the last 4 consecutive quarters.

Some of my friends who work there have nothing but good things to say about the company. The storage industry is going through a lot of consolidation and to be profitable in such an environment of falling prices and downturn in the PC demand is truly remarkable. Their management deserves a lot of credit.

[mrb1960]

I dunno about the rest of you, but I would rate the hard drives in order of dependability. It would go something like this:

IBM Deskstar Western Digital Seagate

Then all the rest, Fujitsu, Quantum, Maxtor, you can thrown in the garbage. I've worked on computers for over 7 years, and I can say without a doubt that Seagate is not the premier hard drive maufacturer, IBM is. Western Digital is second.

I've never replaced an IBM drive, seldom replaced a Western Digital drive, frequently replaced Seagate drives, and am always replacing Maxtor, Quantum and Fujitsu.

To see what they are doing raises suspicions with me.