Seagate job cuts may skirt Longmont facility

Reductions targeted primarily at major manufacturing centers in Europe, Asia

By Charlie Howard

For the Camera

Link to Story: Here

The main entrance at Seagate's Longmont campus on Friday. (  Matthew Jonas / Staff Photographer  )

The main entrance at Seagate's Longmont campus on Friday. (Matthew Jonas / Staff Photographer)

Seagate Technology's Longmont facility, which employs around 1,600 people, may escape much of the pain associated with the global job cuts it announced last week, company officials said.

Eric DeRitis, a Seagate spokesman at the company's headquarters in Cupertino, Calif., said most of the 6,500 job cuts will occur at the company's manufacturing facilities in Europe and China. The Longmont site is home to a major design center.

"These cuts are a move to begin reducing our manufacturing footprint. It is a reaction to an expected continuation of reduced demand for our hard drives," DeRitis said.

The cuts equal about 14 percent of its work force. They are to occur in stages over the next year.

Last week's announcement came after a June 29 announcement in which Seagate (Nasdaq: STX) said it would eliminate only 1,600 jobs.

"Because these cuts are happening all through June of next year, we won't know for some time if we will be affected," said Cindy Martini, Seagate's local spokeswoman.

Seagate is planning to take a pretax charge of $164 million during the 2017 fiscal year, which ends next July. This includes about $82 million in cash for employee termination costs, according to a regulatory filing made last week.

Seagate expects to report about $2.65 billion in revenue for the fourth quarter of 2016, which ended June 30, up from its previous estimate of $2.3 billion.

Seagate's shares jumped on the better-than-expected performance, despite concerns about the company's ability to compete against storage devices that are faster and use less power than those it produces. Its shares were trading at $28.90 late Friday.

Analysts continue to be concerned about Seagate's long-term outlook. In a new report, Morningstar, a Chicago-based independent stock ratings and investment research firm, rates the uncertainty of Seagate's stock performance as "very high."

The report cited the narrowing of the cost-to-performance gap between the hard-disk drives that Seagate produces and the newer solid-state drives being produced by Seagate's competitors, which include Samsung Corp. and ScanDisk.

Hard-disk drives use a rotating magnetic disc to store and retrieve digital information within computers.

Solid-state drives utilize flash drive technology or chips to do this job. These drives don't have moving parts, which means faster speeds, more reliability and less power needed to run.

Solid-state drives also cost more, but Timothy Feeney, equity analyst for Morningstar, said those prices will go down.

"Hard-drives have a number of headwinds in the market today. The first one is PC sales are dropping and solid-state drives are the closing price/performance gap fast," Feeney said.

PC sales declined 5.2 percent in the second quarter of 2016, continuing a downward trend that is plaguing the industry, according to the Gartner Group, a Stamford, CT.-based research firm.

Though hard-drives continue to be cheaper, the price environment is changing rapidly. According to Feeney, in 2016 hard-disc drives run at 4 cents per gigabyte as opposed to solid-state's 23 cents per gigabyte. By 2020 solid-state is expected to narrow that gap reducing its price to 8 cents per gigabyte opposed to hard-disc's expected 2 cents per gigabyte.

Seagate has a design team at the Longmont facility of around 200 that has been working on solid-state technology for about two to three years, Martini said.

More information about the cuts will be available when the company releases its year-end report Aug. 2, DeRitis said.