Seagate (STX) Q2 Earnings, Revenues Fall Short of Estimates - Analyst Blog
Seagate Technology plc (STX) reported second-quarter fiscal 2015 non-GAAP earnings per share (excluding the impact of tax benefits, amortization of intangibles, restructuring charges and other one-time items) of $1.35, which missed the Zacks Consensus Estimate by a penny.
Seagate Technology LLC - Quarterly EPS | FindTheBest
Quarter Details
Seagate reported revenues of $3.70 billion, up 4.8% from the year-ago quarter primarily driven by higher demand for its cloud storage products. However, quarterly revenues fell short of the Zacks Consensus Estimate of $3.71 billion.
Seagate’s reported gross profit increased 4.1% from the year-ago quarter to $1.03 billion, primarily on a higher revenue base. However, gross margin contracted 20 basis points (bps) on a year-over-year basis to 27.8%. Operating margin (excluding the effect of gain on arbitration award) contracted 90 bps from the year-ago quarter to 11.7%, primarily due to a 90 bps year-over-year increase in operating expenses as a percentage of revenues.
Seagate reported net income (excluding the impact of tax benefits, amortization of intangibles, restructuring charges, gain on arbitration award and other one-time items) of $452 million or $1.35 per share.
Seagate exited the quarter with cash and cash equivalents of $3.3 billion. Long-term debt stood at $3.93 billion.
Seagate generated $2.05 billion from operating activities in the first six months of fiscal 2015 compared with $1.54 billion in the same period of the previous fiscal. The company paid dividends worth $317 million and repurchased shares worth $201 million in the first half of fiscal 2015.
Our Take
The second-quarter fiscal 2015 results of Seagate were below our expectations. The quarter also witnessed margin contractions.
Nonetheless, the company is gaining traction with its new products focused on surveillance and the analytics market as well as other hybrid drives. Moreover, Seagate’s cloud-based applications have drawn customer interest.
Also, Seagate is focusing on the enterprise side, which is a key growth area in the information technology sector. Anticipating a potential acceleration in cloud deployments (due to exponential growth in data storage in the cloud), Seagate is investing heavily to deliver high-capacity storage devices that would support expansion of cloud infrastructure and cloud applications. We believe that this will boost margins and reduce Seagate’s dependence on the PC market.
Additionally, synergies from acquisitions and product innovations continue to drive growth. The company’s significant exposure to high-end corporate desktop and enterprise server markets is also a positive. Nonetheless, competition from Western Digital Corp. (WDC) and SanDisk Corp. (SNDK) cannot be ignored.
Currently, Seagate has a Zacks Rank #3 (Hold).
A better-ranked technology stock is Super Micro Computer, Inc. (SMCI), which has a Zacks Rank #1 (Strong Buy).
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