IDA still hopes to land Seagate despite the delay

SEAGATE Technology's decision to postpone a 1,000-job investment in Cork caused a major shock this week. However, industry observers say the move was not entirely unexpected because of recent trends in the electronics sector.

The company, which was to invest £148 million in a plant in Ringaskiddy, has deferred plans for six months. The plant was to manufacture high-performance magnetic drives which store information on disk drives.

Seagate is the biggest manufacturer of disk drives in the world and several factors contributed to its decision to put the prestigious project on hold. First, it has had higher outputs in some of its manufacturing plants than previously forecast. Second, the growth rate of what is known as "high end media" has slowed down.

The "high end media" are the biggest users of the magnetic disks which are used in servers or mid-size computers.

IDA Ireland's director of marketing Mr Martin Cronin, says another factor was that the company also varied its product mix slightly. He says some disk drives require a lower amount of magnetic disks than others. "The proportion of disk drives requiring fewer magnetic disks declined in the third quarter." However, the slowdown in the industry is not expected to last long.

Seagate's business is a complex, capital intensive one, says Mr Cronin. "Predicting the markets in electronics with any accuracy for more than a few months ahead is not possible. Although the long-term trend for the sector is up for the past 20 years, it can rise or fall sharply."

Mr Cronin, who met Seagate executives in the US earlier this week, says the information storage business "is on a long-term growth track and this is expected to continue as more and more information is being processed and stored".

He says Seagate's decision came as a surprise "in the sense that it was unexpected, but not a shock in the sense that it happens regularly in the computer industry". The summer is traditionally a slow time for the sector. It was only in the last few weeks as the market returned to normal that analysts were able to get a handle on how it was performing.

"A lot of people watch how demand is going after the quiet period in August, but they don't really know what's happening until the end of September," says Mr Cronin.

A report by analysts Paine Webber at the end of August warned that July had been a slow month for Seagate and Quantum, the second largest disk drive company, with an estimated 20 per cent share of the total market. It also warned that the biggest problem seemed to be the high-end type drives.

The report believed Seagate's high-end business had stalled and did not expect much growth in the third quarter.

A stock report by Standard & Poors late last month also confirmed that demand in the high capacity/high performance market had slowed recently, but said it is expected to pick up between now and Christmas. "While the cost per unit of disk drive storage continues to fall, price declines are currently moderate," it said.

Mr Cronin says sometimes companies bring their plans forward, sometimes they defer them. "There are a large number of projects in Ireland which are currently ahead of schedule."

Intel, which employs close to 2,000 in Leixlip, Co Kildare, manufacturing inkjet cartridges, is one of the jewels in the IDA crown. It cancelled its proposed start up date twice. "Then they accelerated it," Mr Cronin says.

He believes the Cork project will probably be reviewed in about three months. "My best guess is that it will run about six months behind schedule."

Mr Cronin is adamant that Seagate intends to press ahead with the Cork investment. "Their intention to manufacture magnetic disks in Cork is unchanged."

Mr Cronin says the changes in the market will not affect the multinational's Clonmel operation. It employs 1,500 people in its disk drive assembly plant there. It also has 1,400 employees in two plants in Limavady, Co Derry, engaged in manufacturing and assembly. The postponement of the Ringaskiddy plant, which would have had a 50-50 employment split between graduates and operatives is a double blow for Cork.

Just one week ago Eastman Kodak announced that it was to reduce its workforce by 120 staff. The company which manufactures CD-ROMs in Cork said the move was designed to protect the remaining jobs.