Seagate Bulls Have No Memory
Dichotomy Capital • 11 Comments
Dichotomy Capital • 11 Comments
Seagate Bulls Have No Memory
Dichotomy Capital • 11 Comments
Dichotomy Capital • 11 Comments
Mon, Jul. 11, 4:12 PM
Fri, Apr. 29, 10:43 AM
- Seagate (STX -15%) has tumbled after missing FQ3 EPS estimates (revenue was in-line with what the company guided for in its April 13 warning) and guiding on its earnings call for FQ4 revenue of $2.3B, below a $2.61B consensus.
- Likewise, archrival Western Digital (WDC -12.6%) has tumbled after missing FQ3 estimates and guiding on its earnings call for FQ4 revenue of $2.6B-$2.7B and EPS of $1.00-$1.10, below a consensus of $2.92B and $1.34.
- Both companies have been stung by weak PC demand and SSD cannibalization of hard drives. Western estimates the FQ3 addressable market (TAM) for hard drives was 99.8M, down from 115.1M in FQ2 and 125M a year earlier. On the call, it forecast FQ4 TAM will be around 95M. CEO Steve Milligan: "We anticipate that hard drive demand in the June quarter will be slightly down from the March quarter, given continued softer PC demand and weaker than expected demand in performance enterprise."
- Western's hard drive shipments fell 21% Y/Y to 43.1M, with notebook, desktop, consumer electronics, branded, and enterprise sales all falling. Seagate's shipments fell 22% to 39.2M - enterprise and "client compute" drive sales fell sharply, while consumer electronics and branded shipments rose slightly. Both Seagate and Western's average drive capacity was slightly over 1.4TB, with Western reporting a $60 ASP.
- Seagate's non-GAAP gross margin fell to 22.7% (close to what was forecast in the warning) from 25.6% in FQ2 and 28.9% a year ago. Western's GM fell to 28.1% from 28.5% in FQ2 and 30.5% a year ago. Job cuts boosted each company's bottom line: Western's non-GAAP operating expenses fell 19% Y/Y to $477M thanks in part to efforts to integrate its HGST unit. Seagate's opex fell 21% to $439M.
- Western still expects the SanDisk acquisition (will lower the company's hard drive dependence) to close in the June quarter (Chinese approval is pending), and will give updated guidance after it does. It now expects $800M/year of cost savings related to HGST integration by the end of 2017, up from a prior $650M.
- Seagate: FQ3 results, earnings release, slides (.pdf)
- Western: FQ3 results, details, earnings release, datasheet (.pdf)
Fri, Apr. 29, 8:04 AM
Thu, Apr. 28, 5:30 PM| Thu, Apr. 28, 5:30 PM | 3 Comments
Wed, Apr. 13, 5:02 PM
- Seagate (NASDAQ:STX) now expects FQ3 (calendar Q1) revenue of $2.6B, below prior guidance of $2.7B (consensus is also $2.7B). Gross margin is now expected to be ~23%; Seagate previously guided for GM to be roughly flat with FQ2's 25.6%. Hard drive shipments are expected to total 39M (good for a ~40% share).
- The hard drive giant blames weak demand for mission-critical enterprise drives (a high-margin business, has been hurt by SSD and cloud storage adoption), soft demand for storage systems and chips, soft desktop product demand (mostly in China), and a decision not to participate in the low-capacity notebook market. 8TB nearline drives (often used in cloud deployments) were a strong point.
- Seagate is down 2.7% after hours to $33.01. FQ3 results are due on the morning of April 29.
- Earlier this week: Global PC shipments drop to lowest level since 2007
- Now read Rethinking The Seagate Bull Thesis
Fri, Jan. 29, 10:25 AM
- With expectations low thanks to weak PC sales and soft enterprise server/storage demand, Seagate (STX +11.7%) has surged after beating FQ2 estimates and providing light FQ3 guidance. Likewise, archrival Western Digital (WDC +11.2%) is faring well after posting mixed FQ2 results (revenue missed, EPS beat) and guiding light.
- Guidance: Seagate has guided on its FQ2 call for FQ3 revenue of $2.7B, below a $2.85B consensus. Western guided on its call (transcript) for revenue of $2.8B-$2.9B and EPS of $1.20-$1.30, below a consensus of $3.23B and $1.46.
Seagate details: Seagate's FQ2 EPS benefited from the repurchase of 2.9M shares at a cost of $107M. Non-GAAP gross margin was 25.6%, +140 bps Q/Q and -260 bps Y/Y, and within a 25.5%-26% guidance range.
Hard drive revenue fell 21% Y/Y to $2.73B; revenue from enterprise systems, flash, and other products rose 15% to $259M. Hard drive shipments fell 19% Y/Y to 45.9M, with average capacity rising 23% to 1.32TB.
Western Digital details: Non-GAAP gross margin fell 40 bps Q/Q and 200 bps Y/Y to 28.5%; Western had forecast GM would be "slightly up" Q/Q, and is against guiding for a Q/Q increase. No shares were repurchased. Hard drive shipments fell 19% Y/Y to 49.7M; enterprise SSD revenue rose 44% to $270M. Western estimates the total market (TAM) for hard drives was 115.1M units, down from 118.7M in FQ1 and 140.8M a year ago. 35% of revenue was PC-related
Regarding Chinese firm Unisplendour's planned investment (15% stake) in Western, the company says it continues working with U.S. regulators (the CFIUS), and expects a decision in February. Meanwhile, the SanDisk acquisition (expected to see less regulatory scrutiny) is forecast to close in calendar Q2.
- Western also rallied yesterday after SanDisk (SNDK +4.7%) posted a healthy Q4 beat and issued soft Q1 guidance (expected given NAND price pressure and Apple's outlook) on Wednesday afternoon. For its part, SanDisk is up 9% over the last two days.
- Seagate: FQ2 results, earnings release, slides (.pdf).
- Western Digital: FQ2 results, earnings release, datasheet (.pdf).
Fri, Jan. 29, 8:01 AM
- Seagate Technology (NASDAQ:STX): FQ2 EPS of $0.82 beats by $0.11.
- Revenue of $2.99B (-19.2% Y/Y) beats by $50M.
- Shares +2.97% PM.
Thu, Jan. 28, 5:30 PM
Oct. 30, 2015, 6:36 PM
- Seagate (NASDAQ:STX) guided on its FQ1 earnings call (transcript) for FQ2 revenue of $2.9B-$3B, below a $3.1B consensus and implying a 20% Y/Y revenue decline at the midpoint. However, expectations were low following Seagate's Oct. 15 warning, a warning that might not have been fully accounted for in consensus estimates, judging by the fact the FQ1 revenue consensus was at $2.94B (Seagate forecast revenue of $2.9B in the warning).
- Boosting FQ1 EPS: $983M was spent to buy back 20M shares. That left Seagate's cash balance standing at $1.9B at quarter's end; debt stood at $4.1B. Also lifting EPS: Job cuts led non-GAAP operating expenses to drop 9% Y/Y to $501M. Quarterly opex is expected to fall to $460M by the end of June.
- FQ1 details: Gross margin fell to 24.2% from 27.2% in FQ4 and 28.1% a year ago; FQ2 GM guidance is at 25.5%-26% vs. 28.2% in the year-ago period. Hard drive ASP fell $2 Q/Q and Y/Y to $58. Enterprise drive shipments fell by 1M Y/Y to 7.8M, desktops fell by 6.3M to 12.4M, notebooks by 3.8M to 16.4M, consumer electronics by 0.5M to 5.5M, and branded drives by 0.5M to 5.2M.
- After opening higher, selling off, and partly rebounding, shares closed unchanged today. YTD, they're down 41%. The dividend yield stands at 6.4%.
- FQ1 results, PR, slides (.pdf)
Oct. 30, 2015, 8:03 AM
- Seagate Technology (NASDAQ:STX): FQ1 EPS of $0.54 beats by $0.04.
- Revenue of $2.93B (-22.5% Y/Y) misses by $10M.
- Shares +0.89% PM.
Oct. 29, 2015, 5:30 PM| Oct. 29, 2015, 5:30 PM | 19 Comments
Oct. 29, 2015, 1:15 PM
- Western Digital's (WDC +1.7%) FQ1 results were roughly in-line with the outlook provided in its Oct. 21 pre-announcement (provided while announcing the SanDisk deal). The company guided on its earnings call (transcript) for FQ2 revenue of $3.3B-$3.4B and EPS of $1.50-$1.60, below a consensus of $3.45B and $1.75.
- Western is nonetheless trading higher. Archrival Seagate (STX -2.9%), which issued an FQ1 warning on Oct. 15 (enterprise share loss to Western is believed to be the culprit) and reports on Friday morning, is selling off.
- Western's gross margin fell 90 bps Q/Q and 120 bps Y/Y in FQ1 to 28.9%; it's expected to rise "slightly" in FQ2. $60M was spent on buybacks; Western has said it will suspend its buyback (while keeping its dividend) on account of the SanDisk deal.
- Hard drive shipments totaled 51.7M - 15.8M notebook, 11.7M desktop, 11.5M consumer, 5.6M branded, 7.2M enterprise - up from 48.5M in FQ4 and down from 64.7M a year ago. 66% of revenue came from non-PC markets, up from 55% a year ago (the SanDisk deal will further increase that number). Enterprise SSD revenue was $233M vs. $244M in FQ4 and $156M a year ago.
- On the earnings call (transcript), Western noted demand for high-capacity enterprise hard drives (beloved by Internet giants) was "somewhat softer than anticipated" due to the "absorption of previously deployed storage assets." Regardless, it still expects a 35% enterprise capacity CAGR through 2020.
- The company echoes others in declaring it sees "some signs of stabilization" in PC demand. Ahead of the SanDisk deal (will boost Western's SSD share and lower its flash costs), Western also reports seeing "a very competitive market" in enterprise SSDs.
- Western's FQ1 results, PR, datasheet (.pdf)
Oct. 21, 2015, 9:32 AM
- Along with announcing a $19B deal to acquire SanDisk (SNDK +4.1%), Western Digital (WDC -2%) says it expects to report FQ1 revenue of $3.4B and EPS of $1.56 vs. a consensus of $3.28B and $1.56. Gross margin fell 90 bps Q/Q to 28.9%. With Seagate (STX -0.5%) having warned last week, the revenue outlook appears to confirm analyst suspicions Western gained enterprise hard drive share.
- Of Western's proposed $86.50/share payout to SanDisk, $85.10/share is in cash. The cash portion of the $86.50/share payout drops to $67.50/share if a planned investment in Western by Tsinghua Unigroup subsidiary Unisplendour (for a 15% stake) hasn't closed or is terminated.
- To help finance the deal, Western plans to obtain a whopping $18.4B worth of new debt facilities. It expects to continue paying its dividend, but will suspend its buyback program.
- Cost synergies are expected to reach a $500M/year run rate within 18 months; the deal is expected to be accretive to EPS within 12 months of closing (not surprising given it's mostly in cash). SanDisk's NAND flash manufacturing JV with Toshiba will be maintained.
- By acquiring SanDisk's NAND chip, controller, and SSD IP, and by gaining the ability to source NAND at cost, Western effectively neutralizes the cannibalization threat posed by SSDs/flash storage to its hard drive ops. For now, Seagate continues to rely on 3rd-party flash manufacturers; an alliance with Micron was formed in February.
- SanDisk is trading roughly 10% below Western's offer price.
Oct. 15, 2015, 7:08 PM
- "Based on the Pre-announcement and implied 117.5M [total addressable market], we believe Seagate (NASDAQ:STX) lost share on the Enterprise side of the business to Western Digital (NASDAQ:WDC)," writes RBC's Amit Daryanani after taking in Seagate's FQ1 warning, which was blamed on weak nearline enterprise hard drive sales. "ASPs declined materially where Enterprise units (40% gross margins) are in the $100+/unit range while PC/gaming units are in the $55-$65/unit range."
- Likewise, Brean's Ananda Baruah thinks both slightly higher-than-expected industry shipments and Seagate's enterprise issues "suggest a net-positive impact" for Western through at least calendar Q4. However, he argues Seagate's issues are temporary. "We maintain conviction that STX’s normalized EPS remains at least $5.00 (a key level for us). Bottom line is that STX has issued a significant response to the softer PC environment by reducing its Opex $s 20% from the Mar ’15 Q and Mar Q ’16 ... Our $65 [target] (30% appreciation) is 12x our estimated FY17 EPS of $5.30 and 13x our CY16 EPS of $5.00."
- Seagate fell 13.3% in regular trading to new two-year lows. Western fell 2.5%.
Oct. 15, 2015, 9:17 AM
- Seagate (NASDAQ:STX) now expects to report FQ1 revenue of $2.9B vs. prior guidance of $2.9B-$3.1B and a $3.03B consensus. Unit shipments are expected to total 47M - up from FQ4's 45.3M but down from 59.5M a year ago - with Seagate maintaining a 40% share (implies a total market of 117.5M).
- Gross margin (non-GAAP) is now expected to be at 24%, below prior guidance of 27% and down from 27.2% in FQ4 and 28.1% a year ago. Seagate blames lower-than-expected demand for 4TB and 6TB nearline hard drives. An 8TB product was recently announced.
- FQ1 op. cash flow is expected to total $800M. 20M shares were repurchased.
- CEO Steve Luczo: "While Seagate had strong operating cash flows and made significant progress in cost containment in the September quarter, we are disappointed we did not execute a product portfolio that fully addressed the demand in the nearline market. Looking ahead, we are confident that our nearline product portfolio will be fully competitive by our fiscal third quarter."
- Full FQ1 results arrive on the morning of Oct. 30. Western Digital (NASDAQ:WDC), recently rumored to have held buyout talks with SanDisk, is following Seagate lower. Seagate also issued an FQ4 warning in July.
Seagate Technology Plc engages in the provision of electronic data storage technologies and solutions. Its products and services include network attached storage, high performance computing, data protection appliances, internal hard drives, backup and recovery services, flash storage, and... More
Industry: Data Storage Devices
Country: United States
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