Like a lot of technology chief executives these days, Seagate's William Watkins finds himself frequently asked whether the world as we know it is coming to an end — or something like that.
What with frequent triple-digit losses on the Dow Jones and the occasional global stock meltdown, these are trying times for any chief executive, let alone one in charge of the world's biggest drive business (measured in sales) — and one subject to endemic quarterly ups and downs. But stock blips and gloomy Wall Street analysts aside, Watkins remains confident about the longer-term direction of technology and business trends. In its second fiscal quarter, which was announced last week, Seagate tripled net income on a 14 percent increase in sales.
Seagate did confess to some management stumbles, but Watkins said those are in the past now and the company intends to capitalise on the increasing appetite for consuming different forms of digital media.
Q: Your quarterly numbers came out, Seagate gets upgraded to a strong buy and yet the stock still falls. Do you think you got pounded because the forecast was a little on the low end of Wall Street's estimates or is that just the way things work today?
A: I don't know. Maybe that's sort of the rationale. We have this saying: [You can] go a day without food, a day without water, a day without sex, but you can't go a day without rationalising something. I just think there's fear. I mean, think about the forecast we put out: it's 15 percent year-on-year revenue growth with a 30 some percent year-on-year earnings increase.
I'm generating over $700m (£355m) in cash, over $500m in free cash, no inventories, double-digit growth, and yet I'm trading at less than an eight [price to earnings] multiple. All I can think of is that there's just real fear out there. But we're in this for the long haul and I think the market always gets back to reality. It will this time, too.
How much does what's going on in the stock market and the rest of the economy affect Seagate, as well as the other drive makers?
Outside of the financial institutions, I don't see it.
Well, there's housing.
Well, yes, housing, but that really is financial-related with the sub-prime mortgage issue. I guess it's there, but we're not seeing it in stores. Our Christmas was great. We just hit records. So maybe people aren't going to restaurants, maybe they don't buy a new home, but they're getting on the internet. They're playing; they're watching content; they're sharing it — and it's all driving storage.
The other thing is over 70 percent of our product goes international. We're not seeing a lot of slowdown anywhere international, either in Asia or Europe, which are both very strong for us. I think we're going to talk ourselves into a recession [rather] than [there being] an actual one there. But you talk with IBM or other people in the Valley and they're not seeing world recession.
After Seagate's quarter, one of the problem areas the company talked about was what were described as "time-to-market issues". Where are you with that?
I've got to blame myself. I took a real hard look after last March and I cut. I stopped all hiring, I started cutting programmes... I put a lot of churn in the organisation that basically spent three months doing stuff that we didn't even use. Then the whole industry turned and was doing a lot better and we had to do a lot of scrambling. But it wasn't like our engineers got dumb. Maybe I got dumb.
Maybe people aren't going to restaurants, maybe they don't buy a new home but they're getting on the internet...
William Watkins, Seagate
We're paying the consequences, but we've got the 250[GB version] coming out in the quarter. We've got the 320[GB] coming, and so we're catching up on two programmes simultaneously. I feel really good about the progress we're making. Once given the resources, our people have been able to execute. So we feel good.
What are your thoughts about the likely adoption-rate curve of 1.8-inch drives in the notebook market?
We think the 1.8 will eventually be a notebook product, but we think it's still early. You saw Apple come out with a 1.8 on its machine and so, again, we're looking at it. We think it's on a cost-price basis that the 2.5 still is favoured but, long-term, we think it's a viable format... To be honest, in our roadmap, we've got some timing when we want to bring it on, but we're going to time it right.
You were quoted last year saying that you expect to have solid-state drives across the board in 2008. Are you sticking by that?
We're going to have a solid-state drive solution on every roadmap we have and, by the end of this year, I expect us to have a solid-state drive out in at least one specific market.
Why hasn't the technology caught on faster?
Because the cost-per-storage gigabyte [ratio] just hasn't played very well. A lot of people are going to buy and pay this extra premium. And we do think that [for] architectures or enterprises, it makes some sense where you can get the performance. They're not big volumes yet, but three or four years from now, depending on how the technology, the cost-per-gigabyte, and the reliability issues get resolved, there will be other places for it... We've just got to make sure we're agnostic and have all the solutions available.
Do you think solid state provides any extra measure of assurance or reliability for the user?
No. There is this argument that no moving parts is better but, if you look at the [reasons] why PCs fail... the hard drive is not the number-one or number-two issue. Chips generally have a higher failure rate in the systems than…
Talkback
Mr Watkins is right, tech has moved beyond luxury status, it is now cetral to people's lifestyles not to mention its importance to businesses.
On top of that, tech products dont get affected by inflation unlike any other consumer goods; things are more affordable now than last year, they'll be even cheaper next year.
If there is indeed a recession as predicted, tech will be one of the last industries to feel the trickle-down effect, right next to food!