UPDATE 1-Pricing fears whack Seagate, Western Digital shrs

* Disk drive makers’ shares dive

* Analysts downgrade Seagate on margin concerns

* Bodes ill for Western Digital, results later

* Option volume in Western Digital spikes
(Adds increased options volume on Western Digital)

LOS ANGELES/CHICAGO, July 21 (BestGrowthStock) – Shares of disk
drive maker Seagate Technology (STX.O: ) dived on Wednesday after
its disappointing quarterly forecasts, and option traders’
sentiment on Western Digital Corp (WDC.N: ) turned bearish ahead
of its quarterly earnings.

Seagate Technology warned this week that margins for the
current quarter would come in at the lower end of its 22
percent to 26 percent forecast, which stoked fears that
intensifying competition will hammer hard drive prices.

Analysts had predictions for gross margins around 27
percent. [ID:nN2092387]

Investment banks, including JPMorgan and UBS, lowered price
targets or downgraded shares of Seagate, as the company’s stock
plunged 8.6 percent to $13.28 in afternoon trade. Shares of
Western Digital, which reports quarterly results later on
Wednesday, slid $1.40 or 4.4 percent to $30.45.

Overall option volume in Western Digital is 2.1 times the
usual levels with about 18,000 puts and 4,419 calls traded by
midafternoon, according to options analytics firm Trade Alert.
A put option grants the right to sell shares at a fixed price
up to a certain date.

The August $30 put option was the most popular on Tuesday,
with over 3,000 contracts traded — more than half of which
traded at the ask price, suggesting they were bought, according
to the website for options research firm Schaeffer’s Investment
Research.

Overnight, the number of existing positions held by
investors at this strike price swelled by more than 2,400
contacts, revealing the addition of fresh bearish bets at this
put strike, Schaeffer’s said.

Analysts expect Western Digital to report earnings per
share of $1.35 on Wednesday, according to StarMine data.

“WDC has a stellar history in the earnings confessional,
beating the consensus estimate in the last four quarters by an
average upside of 63 percent,” Schaeffer’s said.

Schaeffer’s said the puts have been all the rage lately,
with the stock sporting a 10-day International Securities
Exchange put/call volume ratio of 7.10. “This put-heavy ratio
ranks in the 99th annual percentile, revealing that traders
have rarely initiated puts on WDC at a faster pace,” it said.

Investor sentiment has worsened following Seagate’s
disclosure in its fourth-quarter report on Tuesday that the
company expects prices to erode in the current quarter.

“While not the complete slowdown the stock valuation had
been factoring, the industry commentary around pricing is not
good,” said JPMorgan’s Mark Moskowitz, who lowered his target
on the stock to $19.00 from $21.50.

“The beat-and-raise scenario has been put in place, but the
pricing risks, which typically last longer than expected, could
defer a sustainable, positive change in investor sentiment.”

Seagate, the world’s largest maker of hard drive storage,
said weakening demand in Europe, which is grappling with a debt
crisis, hurt its June quarter, and it warned of further pricing
pressures in the current three months.

“We expected it (Western Digital) to be subject to the same
industry forces,” said Brean, Murray, Carret & Co analyst
Ananda Baruah. “It appears that the pricing pressure we spoke
of in our preview is manifesting itself on margins to a greater
degree than we thought.”

Stock Market Advice

(Reporting by Edwin Chan and Alex Dobuzinskis in Los Angeles
and Doris Frankel in Chicago)

UPDATE 1-Pricing fears whack Seagate, Western Digital shrs