Seagate's Mobile Loss Looks Positive For Western Digital, Marvell

On Thursday, Seagate Technology (STX) reported FQ2 revs of 3.420B (-2.1% below Street expectations of $3.493B, and below the $3.45B midpoint of management’s guidance range of $3.4-3.5B). The +4.1% Q/Q increase is below the 5-year average of +8.5% (?=6.01).

As the table above shows, STX’s mobile revs were down -18.2% Q/Q; at the same time, STX itself estimates mobile TAM units +11.4% Q/Q (supply chain data support this). STX’s mobile shortfall was in part due to capacity constraints, with some siphoned away to CE.

Sees FQ3 Modestly Below Street

STX guided FQ3 revs of $3.2-3.3B ($3.25B midpoint -1.8% below Street expectations of $3.310B). The implied -5.0% Q/Q decline is in line a 5-yr avg of -5.4% (?=10.22). Management has addressed some of its mobile capacity issues, and with CE in a seasonal decline, no longer needs to divert capacity there.

Implications

STX’s loss, Western Digital's (WDC) gain. STX’s FQ2 mobile loss is huge. Recall that WDC has already pre-announced better Dec-Q results very early in the Q (see WDC : Raises Guidance Again, As Expected, 12.9.07). While we expected STX to raise guidance as well, now we know the reason: the mobile shortfall. This would appear to benefit WDC; thus we see further upside there. Further, we believe this will be a drag on LSI Corporation (LSI) (STX’s largest silicon supplier; see “Relationship Strength,” right) and be a benefit for Marvell (MRVL) (WDC’s largest silicon supplier). With the larger drivers of the HDD business remaining strong (though down seasonally), we keep STX and LSI on our Stocks To Watch List with a positive bias. We expect upside this Q from WDC and MRVL, due to their apparent mobile share gain.

Implications: Xyratex (XRTX), Intevac (IVAC).

For now, STX is keeping CAPEX at a “maintenance” level of $900M, but we believe it is just a matter of time for increased CAPEX. XRTX and IVAC remain on our Stocks To Watch List with a positive bias.

Disclosure: none