A Western Digital Corp. downgrade led to a wide selloff in the disk-drive sector Tuesday as investors braced for a price war.
New York-based Kaufman Brothers LP downgraded the Lake Forest-based company’s shares from “hold” to “sell” before the market opened Tuesday, sending its stock down nearly 8% by the end of trading.
The downgrade also sent shares of Western Digital competitors down, including Scotts Valley-based Seagate Technology, which fell about 5%. Maxtor Corp. of Milpitas saw its stock fall about 5%.
Seagate, already the No. 1 drive maker, plans to buy Maxtor, which claims the No. 4 ranking. Western Digital is No. 2.
Kaufman Brothers analyst Shebly Seyrafi said a major price battle began in early February with Western Digital going aggressively after Maxtor’s disk drive business.
Seyrafi’s assessment came after Western Digital in December said that “pricing in all segments of its business has been better than expected and the company has continued to make improvements in manufacturing cost efficiencies, leading to better than expected gross margin performance,” according to a regulatory filing.
But Seyrafi said prices have slipped 10% to 12% since early February, and he added a Western Digital executive said late last month that price declines are within expectations for the quarter.
