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Hard Times Ahead for Hard Drive Business: Chanos

Wednesday, 8 May 2013 | 6:36 PM ET
Source: Kynikos Associates

The mobile-computing revolution is bad news for the hard drive business, Kynikos Associates founder Jim Chanos told the audience at the Ira Sohn investment conference Tuesday afternoon.

Chanos, best known for shorting Enron, has been bearish on the personal computing business for some time. The entire industry faces trouble from consumer preferences for mobile devices such as tablets and smartphones, according to Chanos, who has described Hewlett-Packard as "the ultimate value trap."

The business of hard drives is also a value trap, Chanos said. Western Digital and Seagate Technology, the two biggest companies in the category, are likely to see their shares come under the same kind of pressure that has hit PC stocks, he added.

"Hard disk is PC with a year lag," Chanos said.

(Read More: Tech Stocks Decline as PC Industry Shift Intensifies)

The end of this year and 2014 will be harsh for the hard drive business, he said.

He singled out Seagate as his favorite short in the sector, saying that it not only faces margin pressures but has accounting issues. Seagate executives have been selling their shares, and one top executive resigned Monday night, according to Chanos.

Chanos noted that Toshiba, the No. 3 player in hard drives, has said that its margins will fall by half. Samsung, which was the fourth-largest player in the sector, sold its business to Seagate, which Chanos takes as a bad sign.

—By CNBC's John Carney. Follow John on Twitter @Carney

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