Seagate Technology Could Be a Future Winner

The company is doubling down on the market opportunity

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Feb 01, 2022
  • Seagate Technology reported strong earnings for the December quarter.
  • The macroeconomic outlook is improving for the storage solutions market.
  • Seagate Technology is cheaply valued in comparison to the tech sector.
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Seagate Technology Holdings PLC (STX, Financial) is a provider of electronic data storage technology and solutions around the world. The company specializes in hard-disc drives and manufactures a variety of electronic data storage products, such as solid-state hybrid drives, solid-state drives, PCIe cards and serial advanced technology architecture controllers for use in enterprise servers and storage systems, client compute applications and client non-compute applications. Many businesses around the world are embracing cloud technology, which is a trend that accelerated as a result of pandemic-related mobility restrictions over the last couple of years. This macroeconomic development has helped Seagate secure new business opportunities, so the company seems well-positioned to grow in the next five years.

Earnings are trending in the right direction

The company's December quarter performance was robust, with Seagate claiming it was the best in over six years thanks to increased demand from cloud customers. The company reported earnings per share of $2.4, up 87% in comparison to the previous year.

The hard-disc drive business set a record capacity for the fifth consecutive quarter, totaling 163 exabytes, up 3% sequentially and 26% year over year. Cloud demand boosted mass capacity revenue to $2 billion, a 1% improvment sequentially and up 35% from the previous year. The overall number of exabytes achieved in the mass capacity market was 147, an increase of 4% sequentially and 41% year over year.

Revenue in the legacy market was $775 million, down 15% year over year. It was impacted by continued personal computer component shortages and decreased mission-critical sales. Despite the current market environment, non-HDD revenue grew 48% year over year to a new high of $294 million, boosted by robust demand for solid state drives.

Seagate has benefited from increased cloud data center investments in recent years to support remote work, online education and the broad market shift to a cloud-focused technology model. The emerging technologies that are data-intensive are likely to drive demand for large-scale storage in the future. Although the industry's long-term prospects are promising, Seagate predicts a seasonal slowdown in the March quarter due to supply chain issues and inflationary pressures. On the other hand, the company is optimistic about the non-HDD business, particularly its system solutions, where demand is steady. Seagate Chief Financial Officer Gianluca Romano informed analysts that the company's long-term non-GAAP operating margin target range has been raised to between 18% and 22% of revenue from a previous range of 15% to 20%. Seagate now expects sales growth of 12% to 14% for the fiscal year ending June, up from a previous prediction of a low double-digit increase.

The industry outlook is promising

The pandemic had a negative influence on many parts of the HDD market, but it also forced businesses to shift to the cloud, which has increased the need for data storage solutions. According to International Data Corp., petabyte shipments in the HDD sector will expand at a compounded annual growth rate of 18.5% through 2025. The data storage market is expected to reach a value of $4.2 billion by 2026, according to Industry ARC, increasing at a CAGR of 32.3% through 2026. The increasing use of smartphones, laptops and tablets, as well as the high demand for cloud storage platforms, are all important global growth factors for this market.

The valuation is attractive

Despite the poor performance of major stock market indexes in January, many tech companies continue to trade at lofty valuations. This expensive valuation level has forced many value-oriented investors to look for investment opportunities in other market segments. Seagate Technology is an exception as the company is valued at a forward earnings multiple of 11.95 in comparison to the information technology sector average of 22.49, which suggests it is relatively cheaply valued by the market. What makes this valuation level even more attractive is the improving business conditions for the storage solutions market, which could help Seagate grow at a better-than-expected pace over the next several years.


Seagate Technology is a prominent data storage and management solutions company that specializes in developing unique internal and external storage solutions. In the most recent quarter, the company generated record mass capacity revenue growth, driven by demand from cloud customers. Considering the current technological transformation in favor of the cloud, analysts predict another year of significant double-digit cloud-related capital investments growth in 2022. Although the company did not experience consistent revenue growth in the last five years, the next five years look promising given the macroeconomic outlook is improving.


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