|New Threads Only:|
|New Threads & Replies:|
Forum List » Value Ideas and Strategies|
Share and discuss value investing ideas and investing strategies.
Seagate Misses Q2 Estimates, Foresees a Dull Third Quarter
Posted by: ICRAOnline (IP Logged)
Date: January 31, 2014 03:49PM
Global PC shipments maintained a declining trend in 2013, and storage vendor Seagate (STX) continued to be one of its biggest victims. Seagate recently released its second-quarter 2014 results that failed to meet investor expectations. Let’s take a closer look at some of the details.
Second Quarter Highlights
Seagate posted adjusted earnings per share (EPS) of $1.32, down 4.6% year over year, which was well below analysts’ expectations of $1.38. The company’s quarterly performance was adversely affected by declining revenue and higher operating expenses.
Second-quarter revenue dropped 3.8% to $3.53 billion due to weakening hard disk drive (HDD) demand, reflecting the continuous slump in the PC industry. And even though low-cost and reliable HDDs are demanded by the burgeoning cloud storage space, Seagate’s high-margin HDD sales were poorer than expectations. On the flip side, demand for HDDs from consumer electronics, external storage and network-attached storage areas progressed well.
Further investment in R&D drove operating expenses, which rose to 15.4% compared to the normal range of 12.0% to 14.0%. As a result, operating margin declined 250 basis points to 12.6%.
Total HDD shipments recorded for the quarter were 57 million units, a million lower than the year-ago period. Units sold to original equipment manufacturers (OEMs), its largest sales channel, dropped a percentage point year over year to 66.0%. Average selling price remained flat at $62.
Regarding its regions, America showed positive growth, though sales in Asia-Pacific, Europe, Middle East and African markets slowed down.
With the PC market stuck in the doldrums along with diminishing support from cloud businesses, Seagate expects revenue of $3.4 billion for the third-quarter, which is lower than analyst expectations of $3.46 billion. Operating expenses will continue to remain high sequentially reflecting Seagate’s commitment to continue investing in research and development.
Heading into the Clouds
With the increasing use of smart phones and tablet devices, Solid state media is taking the center stage rather than the bulky HDDs that are required in PCs and data centers. Nevertheless, hard disks still play a key role in the enterprise and cloud storage space.
In order to excel in HDD sales, Seagate needs to better understand the needs of Cloud and enterprise customers because that’s the best way it would be able to realize higher volumes. In addition, the acquisition of Xyratex (in December 2013) — a company that has served the likes of Dell and IBM — should aid Seagate to enhance its expertise in Enterprise data and improve overall supply chain economics.
The Xyratex buy could put Seagate ahead of archrival Western Digital (WDC), which reported better-than-expected second-quarter earnings last week and posted a 3.9% revenue growth.
Despite the decline in hard drive shipment volumes, Seagate’s sales in terms of storage capacity hit a record of 52.2 exabytes, up by 8.3% from the previous year’s quarter. But, the sad fact is that this doesn’t necessarily bode well for the company. A steady growth in the high-margin cloud storage space will be crucial for Seagate to boost overall profits and compensate for the slump in the PC space. So it will be interesting to see how things pan out post the Xyratex acquisition. What are your thoughts?
Stocks Discussed: STX, WDC,
Disclaimers: GuruFocus.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on GuruFocus.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The gurus may buy and sell securities before and after any particular article and report and information herein is published, with respect to the securities discussed in any article and report posted herein. In no event shall GuruFocus.com be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on GuruFocus.com, or relating to the use of, or inability to use, GuruFocus.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. The gurus listed in this website are not affiliated with GuruFocus.com, LLC. Stock quotes provided by InterActive Data. Fundamental company data provided by Morningstar, updated daily.