Hard disk drive maker Seagate Technology (ticker: STX) reported strong revenue and earnings growth for the third quarter (its F1Q06), but lower guidance for F2Q06 and ongoing concerns for NAND flash memory's threat to its core business continue to weigh on the stock. Key data and quotes from the STX conference call:
- Pro-forma earnings: $272 million (54 cents per share) -- 400%+ growth from F1Q05
- Revenue: $2.09 billion ($1.56 billion in F1Q05)
- Gross margins: 25.6% (17.7% in F1Q05)
- ASP per drive: $78 ($80 in F1Q05)
- Guidance for 2Q05: Revenue $2.1-2.2 billion, pro-forma earnings 48-52 cents per share
Seagate CEO Bill Watkins commented on the source of recent growth, despite the incursion of high-capacity NAND flash memory products like Samsung's upon the CE market:
DVRs and hard drive-based DVD recorders remain one of the CE market's fastest growing applications. We shipped 2.2 million drives into these systems during the quarter, an increase of over 100% year on year. There is a tremendous opportunity in the space, even beyond traditional cable and satellite DVRs... As capacity-intensive high definition broadcast content and video-on-demand services increase their penetration rates, we expect to see additional demand...
And on the current dynamic in Seagate's PC business -- why notebooks aren't completely cannibalizing global desktop growth:
there is an erosive element to the growth in the notebook business versus the desktop. There is almost no other way to slice it… while that's occurring and maybe we would see 20% year on year growth with desktop had it not been occurring, there is still a fair amount of growth left in the desktop and that growth is in places like Latin America, Eastern Europe, China, India, some of the more developing countries... What we are experiencing is, although notebook is erosive in some of these applications and geographies, its growth does not seem to be debilitating to desktop growth in that there's enough growth in other parts of the world to continue to grow desktop at a pretty significant rate.
(Quotes are from the CCBN StreetEvents transcript.)