The policy U-turn which resulted in Seagate severing its ties with Clonmel just six months after it had advanced plans for a major expansion in Ringaksiddy, Co Cork, is indicative of just how cyclical the disk-drive business is.

And as the sector enters its latest slump, the seven major companies which dominate 93.5 per cent of the world disk-drive trade are caught in a tight struggle for increased market share.

Seagate has had to adjust gradually to increased competition, as its rivals mounted major offensives in the market for servers where it has always dominated. This is the "high end" of the market where high-capacity drives designed for servers provide much higher profits and where companies such as Quantum, Western Digital, Fujitsu, Hyundai and Samsung have been muscling in.

Seagate was second only to IBM when in 1983 it shipped the first magnetic disk-drive for the PC market. It fitted in a container half the size of a shoebox, stored five megabytes and sold for less than $1,500 (£1,027). Seagate has been at the top of the market since and has been unused to serious competition.

Current problems in the disk-drive market are largely attributable to two issues. First, the high end of the market is weaker than originally thought, with demand lower than expected. Ambitious annual forecasts have not come to fruition and the company has been left with excess inventory from the first half of the year. The predictions fell particularly short in the Asian market, which is under-performing within the PC sector in general.

Second, the arrival of the other well-financed disk-drive manufacturers has led to more aggressive pricing and reduced profits. The likelihood is that there will be a prolonged battle between some heavy-hitting companies. The Asian threat from companies like Fujitsu, Samsung and Hyundai has sent the market leaders into a spin. The first impulse was to plan massive expansion worldwide - hence the Ringaskiddy plan - but it soon transpired the market was overloaded.

Seagate is not alone in its plight. Analysts have reduced their estimates on two other major disk-drive companies - Quantum and Western Digital. The three companies account for 65 per cent of the world's disk drives.

On Wednesday, Quantum, with 20.2 per cent of the market, experienced a share fall of 25 per cent after it announced that its third-quarter earnings will be less than half of Wall Street's expectations. Quantum said last month that it would take a $40 million exceptional charge to restructure its drive business, including laying-off workers.

Western Digital, the third biggest diskmaker behind these two companies, announced last week its earnings would also be far less than expected, owing to falling prices.

The challenge for the companies now is to readjust their businesses. However, the Clonmel decision may have been an over-reaction on Seagate's part in the face of its unfamiliarity with competition.

As one industry source put it: "The problems Seagate is experiencing are a product of their success, but the way they have chosen to handle it is not humanly based. No civilised company walks into a plant at 10 in the morning and wipes out 1,400 staff. There is something radically wrong if they feel they should behave like this, it's indicative of a company on the verge of collapse."

Mr Colm Donlon, spokesman for the IDA, argues that the Seagate closure should not have a knock-on effect. "The life-span of a product in the disk-drive sector is approximately six months. It is a high-risk sector in respect of pricing and technology. If companies can't adapt and change to meet the market needs, they simply won't survive."

Mr Donlon is confident other disk-drive manufacturers with operations in Ireland will not follow the Seagate example.

Quantum Ireland has expressed dismay at Seagate's move but insists its operation here, which employs 400 people in Dundalk, is stable. "Our manufacturing model in Ireland is very different to that of Seagate. Our orientation is towards automation, service repair and European information systems product engineering. We have a whole basket of activities to support the European marketplace. There is currently significant price pressure in the market, but that is an everyday reality of the business we are in," says Mr Aidan Donnelly, managing director of Quantum, Ireland.

Western Digital now operates only a sales office with a staff of five in Dublin, having already closed its Cork manufacturing base. It says it is going through a difficult period but what remains of the Irish operation is not under threat.

"The disk-drive industry since its inception has gone through cycles where it has created too many drives. We know how to get out of it - by simply not flooding the market. The Irish operation is very secure in the current environment," says Mr Bob Blair, vice-president of corporate relations at Western Digital.

With Seagate and Western Digital the leading competitors at the high end of the market the area currently under siege industry analysts recently pointed to Quantum as the company to back through the current slump. It is the best-positioned desktop supplier and has a highly profitable tape-drive operation which acts as a buffer to the competitiveness of the disk-drive business. But the announcement on Wednesday that it expects profit of 25-35 cents a share in the quarter is very much at variance with industry predictions of 66 cents.

There is now the fear that the current difficulties will hit the software industry, which would have very serious implications for Ireland which is the second-largest exporter of software in the world after the US.

However, the model on which software companies in Ireland operate is very different to the hardware sector. Hardware companies are especially vulnerable to downturns in the market, being driven by low-cost locations.

The software sector tends to create a stronger presence by establishing ancillary businesses, including localisation, call centres, credit control and marketing functions. The manufacturing process is often outsourced. This combination would make it very difficult for a company to pull out of Ireland.