Earnings Preview: Seagate Technology

Seagate Technology (STX) is expected to report Q4 earnings Tuesday, July 15, after market close, with a conference call scheduled for 5:00 pm ET.

Guidance

The consensus estimate is 42c for EPS and $2.89B for revenue, according to First Call. On the company's Q3 earnings call management provided Q4 guidance below consensus. The company guided to Q4 EPS of 41c to 45c.

Analyst Views

Thomas Weisel, following checks with STX competitors, channel partners, and PC ODMs, is incrementally more positive on the HDD industry, including Seagate. The firm's more positive view heading into the seasonally strong September and December quarter is based on checks that suggest HDD unit demand and pricing appears to be tracking above increasingly bearish sentiment. As such, Weisel expects an in-line rather than disappointing results when Seagate reports. Additionally, Weisel's checks with Taiwanese ODMs indicate that demand for HDDs will remain in-line with a seasonal up-tick for the September quarter while pricing will remain within seasonal trends of up 1% QoQ to down 4% QoQ. As such, they remain comfortable with their September quarter estimates of $3.21B (down 2% YoY, up 12% QoQ) and 61c (consensus estimates are $3.23B and 58c).

Wachovia expects in-line desktop and enterprise demand for the quarter. The firm believes the most meaningful potential concern will be that Seagate does not reduce its inventory as much as some investors would like -- the company reported a 29% sequential increase during Q3 of $1.073B, in which finished goods rose 47% sequentially. Wachovia estimates approximately $990M exiting Q4. Key issues for the call: Share repurchase plan, Seagate has a $2.2B authorization exiting March, implications for the model as Seagate enters into the enterprise SSDs space in 2009; CapEx guidance, consensus is flat to down YoY; and signs that Seagate-specific problems in its notebook segment are being resolved.