Seagate: Revenue Will Be Better than Expected

Seagate Technology (STX) on Monday said revenue in its fiscal third quarter will be about $2.1 billion, better than the $1.88 billion projected by Wall Street. Meanwhile, Seagate said it has raised $430 million in a private bond offering that will pay all or some of its $300 million in debt that’s due Oct. 1.

The moves answer two key questions that have been swirling around Seagate:

• What’s the demand picture?
• How will Seagate address its potential liquidity issues?

First the demand picture. Seagate’s said it in a statement that it will ship 39 million units in its March quarter out of an estimated 110-112 million unit market. Demand for Seagate’s 2.5-inch and 3.5-inch ATA products topped internal estimates. Seagate said that enterprise market fell 20 percent in the March quarter compared to the December quarter. Product mix favored lower capacity desktop and notebook drives.

The company said that gross margins will be between 7 percent to 7.5 percent, a tally that was better than projected, but well off the December quarter. Seagate CEO Steve Luczo said the company is “realigning our business processes and optimizing our product portfolio to maximize profitability.”

For Seagate’s fiscal fourth quarter ending June 30, the company projected revenue of $1.9 billion to $2.2 billion. Wall Street was expecting revenue of $1.86 billion. Seagate said the total addressable market for enterprise drives will be flat with the March quarter. The company added that it plans to cut costs further, but didn’t offer details.

As for liquidity concerns, Seagate earlier this month altered the covenants on its credit facility to gain more wiggle room. That amendment coupled with its planned capital raise should give Seagate a cushion for the future quarters. Wall Street is expecting Seagate to lose money for at least the next three quarters.

Comments

[The Watchfu...:]

To give a little more detail on the wiggle room:

Seagate amended its credit pact with its lenders to increase their flexibility in meeting obligations/covenants. The restated pact contains an increase the maximum permitted net leverage ratio to 1.80x for the quarter ended July 3, 2009, 2.65x for the quarter ended Oct. 2, 2009 and 1.80x for the quarter ended Jan. 1, 2010. The pact will proved covenant relief for the next three quarters under the net minimum liquidity requirement to $600M. I believe the original minimum liquidity requirement was at $500M (via Q2 Earnings Call).

Apr 14 03:25 PM