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Seagate Technology Public Limited Company Message Board

  • duedilly duedilly Apr 12, 2006 9:02 AM Flag

    Scribner on Storage Systems

    Lowering our price target for WDC [WDC.N, Buy, $20.03] from $28.00 to $24.00. Raising our EPS est for
    F3Q06 for Western Digital from $0.38 to $0.40, lowering our EPS est for WDC for F4Q06 from $0.34 to
    $0.32, and for 2007 from $1.98 to $1.92. Raising our Revenue est for F3Q06 for WDC from $1,070M to
    $1,076M, lowering the revenue est for F4Q06 from $1,058M to $1,040M, and for 2007 from $4.69B to
    $4.66B. Our checks suggest DT [DTV.N, Buy, $16.51] pricing was within typical levels for a March Q, but
    were steeper than the Dec Q. NB demand slowed this quarter and we expect that unit growth likely peaked
    in C4Q and will slow over the next few quarters. We believe WDC gained share this Q, and will be at the
    high end of guidance, but that ASP declines somewhat offset unit gains. We expect STX's [STX.N, Buy,
    $26.40] result to be in line, with a possible penny upside to our $0.51 EPS due to new products. We expect
    conservative June guidance from both STX and WDC. 2Q headwinds to likely keep shares range bound in the near term.

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    • Cell phones is going to be HUGE.... you now have programs being written to allow user to phone home and set VCR to record..... most likely via cable box..... you will be able to phone home and start up the sauna and the pool and spa so its ready when you walk in the door..

      but for archiving its downloading of media products that will require archiving.... set top boxes and tvs will be big but its all coming on stream later this year....

    • The "softening" that he suggests simply isn't going to happen.

    • Thanks Duedilly. See response.

    • Yes, thanks for the info Due!!!!

    • My favorite part as I have faith in STX's management........

      Our
      model is more conservative than management�s guidance due to the risks associated with
      the acquisition and the fluidity of OEM HDD business. However, if management is able to
      deliver on its expectations, we believe there could be upside to our $2.50 estimate.


      I also think the pe of 13 is WAY too low for a company growing at this rate and happens to be positioned in the middle of the growth curve......

    • <EOM>

    • At these levels, we rate Maxtor a Hold.
      STX-MXO merger update and our estimates
      Last week (4/3/06), Seagate issued an 8K on the Maxtor acquisition, indicating that the
      th
      company had set the shareholder record date for April 11
      . In addition, Seagate moved up
      its guidance on a closing timeframe, indicating that it expects to close the acquisition during
      the month of May (versus prior guidance of July-September). The remaining items required
      for the closing are (1) EU approval, (2) approval from other smaller countries (US has already
      been attained), and (3) a shareholder vote. Seagate submitted its application to the EU on March 20th, and the EU has 25 business days to respond to the application. Seagate
      indicated in its 8K that if it is unable to close the acquisition in May, the company will push
      the closing off until after the June FYE (i.e., early July).
      Our discussions with management indicate that both Seagate and Maxtor are highly
      confident in the deal closing, and that Maxtor�s recent 1Q earnings miss will have no impact
      on the timeline of the acquisition. We believe it is increasingly clear that Seagate is acquiring
      Maxtor to eliminate a competitor and to reduce industry supply. We remain positive on the
      deal, and believe the acquisition is a smart move for Seagate and a benefit to the industry.
      We are initiating our combined Seagate-Maxtor model and are conservatively modeling FY07
      EPS of $2.50. This implies 20% accretion to our FY06 EPS estimate of $2.08, which is at the
      high end of management�s 10-20% EPS accretion guidance. Our model assumes Seagate is
      able to reduce OpEx by $225M in FY07, which is slightly below management guidance of
      $300M. In addition, we assume the Maxtor desktop business declines 25% in CY06 and
      33% in CY07. This implies that the Maxtor desktop business declines 50% from CY05 to
      CY07 (STX has guided to 50% MXO share attrition overall), with the combined companies
      garnering 41% share in the desktop market in CY07 (down from 53% in CY05). We are also
      modeling share losses in enterprise, with the combined companies falling from 65% share in
      CY05 to 56% share in CY07 (which implies 54% of the MXO business goes away). Our
      model is more conservative than management�s guidance due to the risks associated with
      the acquisition and the fluidity of OEM HDD business. However, if management is able to
      deliver on its expectations, we believe there could be upside to our $2.50 estimate.

      (emailing you model gator)

    • Looks like they've been playing with the spreadsheets on WDC, just sliding 2cents around.

      Curious though, is the reduction in 2007 revenue & EPS (which I presume they mean FY2007). They've scaled revenue growth to 10%, which is below 2006 growth. What with the absense of Maxtor and continued expansion into new markets, and possible Vista sales in early 2007 - that growth rate seems real conservative.

      Only time will tell.

      • 2 Replies to go_gatrz
      • Expecting mixed quarter, with conservative guidance for June
        Our checks suggest DT pricing was within typical levels for a March Q, but were
        steeper than the Dec Q. NB demand slowed this quarter and we expect that unit
        growth likely peaked in C4Q and will slow over the next few quarters. We believe
        WDC gained share this Q, and will be at the high end of guidance, but that ASP
        declines somewhat offset unit gains. We expect STX's result to be in line, with a
        possible penny upside to our $0.51 EPS due to new products. We expect
        conservative June guidance from both STX and WDC.
        2Q headwinds to likely keep shares range bound in the near term
        We expect June guidance to be relatively muted this quarter as both WDC and
        STX deal with uncertainty around the MXO deal closing and seek to manage
        expectations. The June Q is typically the slowest for the HDD sector and we
        expect concerns around pricing and slower demand to keep shares range bound in
        the near term. In addition, we believe the concerns raised this quarter over the
        Vista pushback and slowing NB demand will continue to play out over the
        summer. Despite NT concerns, we expect STX and WDC valuations to be revisited
        as the seasonally strong 2H begins and the STX-MXO merger is closed.
        Adjusting WDC estimates and PT to reflect slightly higher ASP declines
        We believe WDC gained share this quarter at the expense of MXO and that results
        will be at the high end of guidance. However, despite unit gains, our checks
        suggest ASP declines were slightly higher than our original expectations (down
        2.9% Q/Q) and now estimate that blended ASPs were down 4.5%. As a result of
        the flow-through of ASPs to the out quarters, we have adjusted our revenue
        estimates down slightly for WDC. Our FY07 estimate is now $1.92, and we are
        lowering our price target to $24 from $28, reflecting a 13x multiple on our slightly
        lower EPS estimates.
        Introducing STX-MXO combined model
        With the STX-MXO deal expected to close in May (or early July at the latest), we
        are introducing pro forma estimates for the combined company. Based on our
        conservative assumptions of slightly higher than 50% share loss of MXO business
        and 20% EPS accretion, we believe the combined company could earn $2.50 in
        FY07. Our model is more conservative than management in terms of STX�s ability
        to maintain MXO share and OpEx cuts. Assuming the combined company trades
        at 13x our conservative FY07 EPS estimates implies a $33 price target for the
        shares, or 15x our current $2.18 for STX on a standalone basis.
        Risks
        The hard disk drive sector is inherently volatile and subject to market share battles
        and aggressive price declines. Specific risks for WDC include mis-execution
        ramping PMR technology, inability to procure enough media to meet demand, and
        a decline in the desktop market. Specific risks to STX include market share losses
        as a result of the announced MXO merger, mis-execution in its lines of business,
        and mis-execution in ramping its new PMR-based drives.

      • I totally agree Gartz...... I thought the same thing about sliding .02 from here to there......Maybe they see STX taking more market share in 07? Demand is only growing........

 
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