Pricing Holds Steady As Demand for Disk Drives Softens

September 20, 2011

Data storage drive pricing remains steady as inventories remain low compared to historical levels for this time of the year, and consistent Asian demand and pending consolidations offset softening of demand from the U.S. and Europe, says Mark Miller, Senior Research Analyst at Noble Financial Group, Inc.

“There are several mitigating factors that can compensate for softer demand. You can actually grow units in a declining market,” Miller said. “The distribution channel inventory levels are low, and we actually have seen some channel pricing increases. Things aren’t as bad as some people are pretending it to be.”

Miller says Seagate Technology (STX) represents a good buy after its valuation dropped 40%, because he says the market overreacted to headlines about the softening of Western demand. Moreover, he says STX has a pending merger, and last quarter the company hit record shipment levels by posting a 7% increase in units.

“Seagate is actually paying a 6.6% dividend. There are not a lot of stocks out there paying a 7% dividend right now, and Seagate has a very healthy free cash flow, $221 million per quarter in average free cash flow over the last three years, and the dividend payment hits Seagate for $80 million a quarter,” Miller said.