Seagate Adopts Baffling Policy on Financial Guidance

I am sitting here listening to the second quarter conference call hosted by Seagate Technology (STX), the world’s leading provider of hard disk drives for the consumer electronics industry, and I just had to write a post with the audio going in the background. Seagate CEO Bill Watkins has just announced that his company is changing their policy on company guidance.

I have written on this blog before that financial guidance is very overrated. Many companies have abandoned giving guidance completely (kudos to them) and others have at least stopped giving quarterly projections. So, I was expecting STX to either cease quarterly guidance and give only annual projections, or to halt guidance completely. Wrong on both counts!

Seagate will now give only quarterly guidance. Are they kidding? The whole point of stopping quarterly guidance is to focus management on the long term and not put them in a situation where they might take actions just to hit a number in the short term. Now they are embracing three-month projections?

I understand them not wanting to give out annual projections. The disk drive business is very hard to predict, as it is largely a commoditized market. Supply and demand, and therefore pricing, is tough to gauge over long periods of time. Essentially, STX management is saying they have no idea what they will earn in fiscal 2008 (which began on July 1st).

If you are going to ditch giving guidance, then stop giving guidance! It seems very strange that they say they are focused on the long term, but yet are still going to predict sales and profits every three months. They should have just stopped guidance altogether.

Full Disclosure: Some Peridot clients have positions in STX, but those positions are under review

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