Seagate Bulls Have No Memory
Dichotomy Capital • 11 Comments
Dichotomy Capital • 11 Comments
Thu, Jun. 9, 8:56 AM
- Global PC shipments this year are expected to fall 7.3%, according to IDC, roughly 200 basis points worse than the group's previous forecast. This cut comes after Q1 shipments fell 12.5% Y/Y vs. the anticipated 11.3% decline.
- "The latest update reflects continuing pressure on PC shipments, but does not significantly change the factors driving the market," says IDC's Loren Loverde, adding that with an unprecedented four straight quarters of double-digit volume declines, the bar has been lowered for some improvement going forward.
- Tickers of interest: INTC, MSFT, OTCPK:LNVGY, NVDA, AMD, MU, STX, WDC
Tue, Jun. 7, 12:24 PM
- Believing NAND flash demand will improve in 2H16 and that hard drive sales will see a modest rebound, Mizuho's Vijay Rakesh has upgraded Western Digital (WDC +3.4%) to Buy, and hiked his target by $13 to $53. Archrival Seagate (STX +2.4%) is following Western higher on a day the Nasdaq is nearly flat.
- Rakesh: "While WDC should give more FY17E details on its July 1 call, we have modeled weaker 2H GMs, weaker Samsung licensing, and see a mostly in-line 2H16 which would be a big change from the significant downside of the last four quarters." He's still worried about NAND flash share losses caused by 3D NAND delays at SanDisk, and notes sales of 10K/15K-RPM enterprise hard drives remain weak.
- Barclays and Cowen upgraded Western in late May, shortly before the company issued revised guidance that took the recently-closed SanDisk acquisition into account.
Wed, Jun. 1, 5:41 PM
Wed, May 25, 10:54 AM
- Barclays' Mark Moskowitz has upgraded Western Digital (WDC +5.8%) to Overweight, and upped his target by $3 to $60. He argues the valuation is too low, that hard drives still have a future, and that multiples can grow as Western brings 3D NAND products to market (via just-acquired SanDisk) and lowers its debt load.
- The call comes a day after Cowen's Karl Ackerman upgraded to Outperform, while asserting the guidance Western is due to provide on Thursday "should help eliminate uncertainty" related to the SanDisk acquisition. He also cited low expectations, and declared SanDisk will help Western better serve enterprise and hyperscale (cloud data center) clients.
- Seagate (STX +3.4%) is following Western higher. Both companies were hammered in late April in response to weak earnings and guidance. Western is up 13% on the week.
- Now read Western Digital: Time To Be Optimistic
Wed, May 4, 10:07 AM
- Steve Luczo discloses he bought 200K Seagate (STX +3.9%) shares yesterday at $20.08. He previously bought 200K (175K at $30.43, 25K at $28.36) in early February.
- The latest purchase came with Seagate down 25% since missing FQ3 EPS estimates and offering soft FQ4 guidance. Shares go for 10x an FY17 (ends June '17) EPS consensus of $1.99, down from $3.74 90 days ago.
Mon, May 2, 2:19 PM
- Seagate (NASDAQ:STX) is falling for a second day after earnings, down 5.5% as analysts line up with lower targets after disappointing fiscal Q3 results and dim guidance.
- It's now down more than 24% over the two days.
- Citi cut its price target to $18, noting the company's guiding in Q4 toward a sixth straight decline in revenues. Capacity cuts could lead to an improvement in gross margin (to 27-28% from a current 23%), analyst Stanley Kovler says. “At this level of operating cash flow and despite capex down to 'maintenance' levels, further cash restructuring charges beyond the announced $150 million we see a rising risk of the board of directors and management rethinking its dividend payout."
- Wells Fargo also expected a bad quarter, and cut its valuation target to $21-$23 from $28-$32, but are maintaining a Market Perform rating amid some positives including strong current and upcoming near-line demand, and capex expected to stay low in fiscal 2017.
- The company's showing demand weakness in mission-critical enterprise drives, PC hard drives and the systems business, Wells says. "Gross margins have been a problem as well, declining 290bps sequentially segmented by a 70bps decline in HDD, 80bps in systems and 180bps from lower utilization."
- Elsewhere, Jefferies cut its target to $25 from $29; Maxim Group slashed its target to $25 from $36; JPMorgan Chase downgraded shares and cut its price target to $15 from $30; UBS trimmed to $20 from $22; RBC downgraded to Sector Performa nd cut its target to $24 from $36; and Brean lowered its target to $30 from $50 (but maintained a Buy).
- Now read Seagate: Don't Fall For This Dividend Yield Trap »
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
Mon, Apr. 18, 12:26 PM
- Brean recently published its most compelling investment ideas for Q2. Among them:
- ETSY - target price $20. Implied upside 126%. "We believe Etsy’s seller services efforts (advertising, payments, and shipping) provide multiple means for the company to materially increase the value of its platform of 24.0M buyers and 1.6M sellers of handmade and vintage merchandise."
- HRTX - target price $55. Implied upside 167%. "The FDA should finally get its act together and approve the Sustol NDA in early April. We view the almost 3-month delay as a nonissue because we do not believe that anything inherent about Sustol is causing the delay."
- SCYX - target price $16. Implied upside 276%. "SCY-078, SCYNEXIS’ lead product candidate, has the potential to become the first glucan synthase inhibitor available both orally and intravenously... Based on the size of the market, competition from other drug candidates in development is limited, and we expect SCY-078 to compete well in the market if approved."
- ARAY - target price $12. Implied upside 99%. "We believe the company is finally positioned to reliably grow at 2-3 times the market (which is currently posting 2-3% growth), and thus we are willing to stick our necks out and once again make this a top pick. We also see leverage in the P&L, anticipating further gross margin gains, but mostly from operating expenses, which are expected to grow at only half the rate of the top line."
- STX - target price $65. Implied upsdoide 152%. "We believe gross margin will continue to recover as product cycle drive, along with cost savings, will lead to margin expansion back to ~28%, from 24.2% and 25.6% in the Sep Q and the Dec Q, respectively. STX dividend yield of 7%+ displays confidence in the business model and its ability to remain extremely cash-flow generative."
- WDC - target price $120. Implied upside 191%. "We believe WDC / SNDK can generate FY17 EPS of $8.00+ and the stock “normalized” should garner at least a 12x multiple, with potential for 15x, expanding from current PE of <6x."
- CRM - target price $100. Implied upside 30%. "In our view, salesforce.com has now replaced SAP and ORCL as the de facto standard in enterprise business applications, which positions the company for the next stage of growth... Our checks indicate large global system integrators are actively pitching salesforce.com solutions over SAP and ORCL, reflecting salesforce.com’s de facto standard status in the enterprise application market."
- Now read How I Stopped Being A Jerk With My Money »
Thu, Apr. 14, 12:45 PM
Thu, Apr. 14, 9:25 AM
Wed, Apr. 13, 5:36 PM
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
Tue, Apr. 12, 2:09 AM
- According to research firm Gartner, global shipments of personal computers fell 9.6% to 64.8M units during Q1, marking the sixth consecutive quarter of declines and the first time since 2007 that shipments dropped below 65M units (IDC reported similar results worldwide).
- In the U.S., PC shipments totaled 13.1M units, representing a 6.6% decline from a year earlier and the lowest volume in three years.
- The sector has faced headwinds in recent quarters which include an economic slowdown in China, the strong U.S. dollar and the growing popularity of smartphones.
- Related stocks: OTC:ASIYF, AMD, HPQ, INTC, OTCPK:LNVGY, MSFT, MU, NVDA, SNE, STX, OTCPK:TOSYY, WDC
Wed, Feb. 3, 3:59 PM
- Chairman/CEO Stephen Luczo has disclosed he bought 175K Seagate (STX +6.7%) shares yesterday at $30.43, and another 25K later in the day at $28.36. His stake now stands at 1.63M shares.
- Also: Philip Brace, head of Seagate's Cloud Systems & Electronic Solutions Group, bought 5K shares at $29.10. His stake stands at 14,930 shares.
- The hard drive giant is up 14% since beating FQ2 estimates and issuing better-than-feared (though below-consensus) FQ3 guidance last Friday. Benchmark upgraded on Monday.
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