- Associated Press - Thursday, July 22, 2010

PHILADELPHIA (AP) - Shares of Western Digital Corp. fell Thursday after the hard disk drive maker warned that its fiscal first-quarter results will not meet expectations, a sign of slowing demand.

THE SPARK: While its fourth-quarter profit rose 35 percent on revenue gains, Western Digital warned that first-quarter revenue will come in between $2.35 billion to $2.45 billion and earnings at 80 cents to 90 cents per share. That’s well below the $2.6 billion in revenue and profit of $1.47 per share expected by analysts, according to Thomson Reuters.

Wedbush Morgan analyst Kaushik Roy cut his price target to $36 from $42 amid concerns that hard disk drive sales are weakening. He slashed his earnings and revenue forecasts for the first quarter and fiscal 2011.

Roy kept his “Neutral” rating on the stock, meaning he doesn’t expect the shares to grow meaningfully anytime soon.

Baird analyst Jayson Noland kept his “Outperform” rating but cut his price target to $40 from $48. He also lowered his 2011 revenue and earnings forecasts due to similar concerns.

THE BIG PICTURE: Demand for hard disk drives has slowed due to previous oversupply, meaning that manufacturers such as Western Digital will be pressured to discount to sell products. The company has said it expects fiscal first-quarter margins to fall due to business softness. Earlier this week, storage maker Seagate Technology said demand came in below expectations during the latest quarter because of issues related to the European debt crisis and slower consumer spending.

THE ANALYSIS: Roy thinks that Western Digital “will match any aggressive pricing actions by its competitors in order to retain its market share.”

Noland said the stock offers “value” at current levels, but he stopped short of recommending that investors buy the stock until there’s more clarity on pricing of hard disk drives in the fiscal first quarter.

SHARE ACTION: Shares of Western Digital, based in Lake Forest, Calif., fell $1.85, or 6.1 percent, to $28.33 in afternoon trading.