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Seagate (STX) Earnings & Revenues Surpass Estimates in Q3

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·6 min read
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Seagate Technology PLC STX reported third-quarter fiscal 2021 non-GAAP earnings of $1.48 per share, which beat the Zacks Consensus Estimate by 13.85%. Moreover, the bottom line improved 7% from the year-ago quarter’s figure and 15% sequentially. Management had anticipated non-GAAP earnings per share for fiscal third quarter to be $1.30 per share (+/- 15 cents).

Non-GAAP revenues of $2.731 billion outpaced the Zacks Consensus Estimate by 2.72%. the figure improved 0.5% on a year-over-year basis and 4% sequentially, on recovering enterprise market, and growth in video and image application (VIA) market. Management had anticipated fiscal third-quarter revenues of 2.65 billion (+/- 200 million).

Exabyte Shipments in Detail

During the reported quarter, Seagate shipped 139.6 exabytes of hard disk drive (HDD) storage, with an average capacity of record 5.1 terabytes (TB) per drive. This marked year-over-year improvement of 16% and sequential growth of 8% in total HDD exabytes shipments. Notably, average mass capacity improved to 5.1 TB from 4.1 TB (up 23%) reported in the year-ago quarter and increased from 4.3 TB (up 17%) reported in the previous quarter.

Seagate Technology PLC Price, Consensus and EPS Surprise

Seagate Technology PLC Price, Consensus and EPS Surprise
Seagate Technology PLC Price, Consensus and EPS Surprise

Seagate Technology PLC price-consensus-eps-surprise-chart | Seagate Technology PLC Quote

The company shipped 110.6 exabytes for the mass capacity storage market (includes nearline and video and image applications as well as network-attached storage or NAS). This marked sequential growth of 14% and year-over-year improvement of 21% in exabytes shipments. Average mass capacity per drive increased sequentially to 9.6 TB from 7.9 TB.

In the nearline market, the company shipped 95.5 exabytes of HDD, up 25% year over year and 34% sequentially. Average mass capacity per nearline drive increased 12 terabytes. This was driven by robust demand for the company’s 16 TB and higher capacity products, which contributed approximately 50% to the total March quarter exabyte shipments.

The company shipped 29 exabytes for the Legacy market (includes mission-critical, notebook, desktop, gaming consoles, digital video recorders or DVR and external consumer devices) with an average capacity of 1.8 TB. This marked a sequential decline of 9% in exabyte shipments. Notably, average capacity increased 12% on a year-over-year basis.

This can be attributed to improved enterprise mission critical sales and stronger-than-anticipated demand for desktop PC, which partially offset sluggishness in consumer drive sales.

Revenues from mass capacity storage was $1.6 billion, up 8% sequentially and 5% year over year.

Revenues by Product Group

Total HDD revenues (91% of revenues) decreased 1% year over year but improved 8% sequentially to $2.493 billion in the reported quarter. Mass capacity and legacy verticals contributed 65% and 35% of total HDD revenues, respectively.

Non-HDD segment revenues (9%), which include enterprise data solutions, cloud systems and SSDs, was $238 million, up 20% sequentially and 24% year over year.

Margin Details

Non-GAAP gross margin contracted 60 basis points (bps) on a year-over-year basis to 27.4%. The gross margin takes into account approximately 100 bps impact from higher freight charges and operational cost-related coronavirus disruption.

Driven by benefits of remote work trend and earlier restructuring endeavors, non-GAAP operating expenses (12% of revenues) were down 3% on a year-over-year basis to $329 million.

Nevertheless, non-GAAP income from operations were $420 million, down 0.5% from the year-ago quarter’s figure. Consequently, non-GAAP operating margin contracted 10 bps from the prior-year quarter’s reported figure to 15.4%.

Balance Sheet and Cash Flow

As of Apr 2, 2021, cash and cash equivalents were $1.212 billion compared with $1.79 billion as of Jan 1, 2021.

As of Apr 2, 2021, long-term debt (including current portion) was $5.142 billion compared with $5.145 billion as of Jan 1, 2021.

Cash flow from operations was $378 million compared with $473 million reported in the previous quarter.

Free cash flow for the reported quarter amounted to $274 million compared with $314 million in the fiscal second quarter.

In the fiscal third quarter, the company repurchased 11.3 million shares worth $751 million and paid out cash dividends worth $161 million.

Notably, Seagate’s board of directors approved a cash dividend of 67 cents per share. The dividend will be paid out on Jul 7 to shareholders of record as of the close of business on May 12.

Guidance

The company provided a not-so-encouraging top and bottom-line guidance. Management anticipates fourth-quarter fiscal 2021 revenues of 2.85 billion (+/- 150 million). The Zacks Consensus Estimate for revenues is pegged at $2.86 billion.

Meanwhile, non-GAAP earnings per share for fiscal fourth quarter is expected to be $1.60 per share (+/- 15 cents). The Zacks Consensus Estimate for earnings is pegged at $1.61 per share.

Going ahead, management expects increases in uptake of mass capacity storage solutions in the cloud and edge computing verticals.

Seagate also anticipates Lyve Platform to fuel demand for its overall mass capacity storage solutions going ahead. Lyve Platform is designed to assist organizations to simplify data management and security.

Management also added that demand in the cloud data center vertical is likely to improve in fiscal 2021 and this bodes well for its HDD storage solutions. Moreover, solid demand for the video and image applications augurs well for mass capacity storage solutions.

Seagate expects robust uptick in the company’s 18-terabyte capacity products to be a key catalyst in the days ahead as production improves.

Zacks Rank & Stocks to Consider

Currently, Seagate carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader technology sector are Advanced Micro Devices, Inc. AMD, Himax Technologies, Inc. HIMX and Entegris, Inc. ENTG. All three stocks carry a Zacks Rank #2 (Buy), at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

AMD and Entegris are set to release quarterly earnings on Apr 27, while Himax is slated to report on May 6.

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Seagate Technology PLC (STX) : Free Stock Analysis Report

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