History 2003: Seagate’s Bad Patch

Seagate Technology saw share prices plummet by nearly 25% since October 22, the results of an SEC investigation, an amended look-up agreement, and pessimistic forecasts for its business.

The SEC has requested an investigation on the company regarding the period between January 2000 and August 30, 2003, asking Seagate to hand over all analyst reports for this period. This case, Seagate subsequently revealed, is the apparent result of allegations, denied by the company, of a former employee relating to certain expenses incorrectly reallocated during Seagate’s restructuring. The disgruntled employee, whose name was not officially cited, was a senior director of business strategy from 1997 until March 2002, before he was fired for sexual harassment.

According to the Business Journal in Saint-Paul/Minneapolis, the alleged whistle-blower is William Schlemmer, who worked for Seagate in Bloomington, MN, and filed a lawsuit vs. the company in which he claims that he was terminated for warning of improper accounting procedures as the firm prepared to file its IPO.

Several days after that story broke, in an attempt to drive up the price of its common stock, Seagate announced that its largest shareholder would not sell shares until next January 20. Previously, agreements were in place allowing New SAC, which still holds more than 60% of Seagate, to sell 16 million shares.

In the same vein, the 3 highest-paid executives at the company, all of whom are directly implicated in the privatization and subsequent IPO, namely chairman and CEO Steve Luczo, president and COO Bill Watkins and CFO Charles Pope, have simultaneously promised that they will not sell any shares during this lock-up period.

If this collective decision succeeds in reassuring the stock market, it’s also understandable, as these major shareholders wait and hope the shares will go up again before they sell.

Adding fuel to the fire during the short time period since Seagate shares began its free fall, the company indicated that price competition was increasing and that it had lost market share in the enterprise segment.

This isn’t the first time we’ve heard about (or detected) anomalies in certain financial figures published by Seagate, and responses to our queries by the company were hardly convincing (or for that matter, intelligible).

The accounting and structural methods, Byzantine to say the least, employed during the course of the companies privatization and return as a publicly traded company, cause more than a few heads to turn.

These latest allegations hardly improve the company’s image in terms of its financial procedures, which seem much less savory than those of publicly-held U.S. rivals Maxtor and Western Digital.

This article is an abstract of news published on issue 190 on October 2003 from the former paper version of Computer Data Storage Newsletter.