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Seagate: Fiscal 4Q17 Financial Results

All figures down

(in $ million) 4Q16 4Q17 FY16 FY17
Revenue

2,654

2,406

11,160 10,771
Growth   -9%   -4%
Net income (loss) 70 114 248 772

Seagate Technology plc reported financial results for the quarter and fiscal year ended June 30, 2017.

For the fourth quarter, the company reported revenue of $2.4 billion, gross margin of 27.7%, net income of $114 million and diluted earnings per share of $0.38.

On a non-GAAP basis, which excludes the net impact of certain items, Seagate reported gross margin of 28.9%, net income of $192 million and diluted earnings per share of $0.65.

During the fourth quarter, the company generated $243 million in cash flow from operations and returned approximately $400 million to shareholders in the form of dividends and share repurchases.

For the fiscal year ended June 30, 2017, the company reported revenue of $10.8 billion, gross margin of 29.5%, net income of $772 million and diluted earnings per share of $2.58. On a non–GAAP basis, it reported gross margin of 30.5%, net income of $1.2 billion and diluted earnings per share of $4.12.

In fiscal year 2017, the company generated approximately $1.9 billion in cash flow from operations and returned 53% of that to shareholders in cash dividends of $561 million and share repurchases of 12.1 million ordinary shares for $460 million. Balance sheet remains healthy and during the fiscal year the company raised $1.25 billion in investment-grade debt and repurchased and redeemed approximately $316 million of outstanding debt. Cash and cash equivalents totaled approximately $2.5 billion at the end of the fiscal year. There were 292 million ordinary shares issued and outstanding as of the end of the fiscal year.

The results of our performance this fiscal year reflect improved year-over-year profitability of our storage product portfolio and business operations,” said Steve Luczo, chairman and CEO. “Although the near-term dynamics of technology shifts present demand variations for the storage industry from time to time, we continue to see growing storage demand in the long-run driven by the proliferation of data growth from new technologies, emerging industries, and growing businesses. We believe we have the vision, products, technology and experience to ensure our long-term success and shareholder value.”

Quarterly Cash Dividend
The board of directors approved a quarterly cash dividend of $0.63 per share, which will be payable on October 4, 2017 to shareholders of record as of the close of business on September 20, 2017. The payment of any future quarterly dividends will be at the discretion of the board and will be dependent upon Seagate’s financial position, results of operations, available cash, cash flow, capital requirements and other factors deemed relevant by the board.

Comments

The situation is really worrying:

  • • Seagate misses street 4FQQ forecasts.
  • • Global annual revenue for FY17 is the lowest one since FY11 and down 4% from the former fiscal year.
  • • For the quarter sales fall 10% sequentially and 9% Y/Y.
  • • Net income down 41% Q/Q to $114 million
  • • Even total drive capacity shipped decreased 3% from the former quarter to 62.2EB and average capacity per drive shipped is the same as for the former three-month period, 1.8TB, a figure that was constantly growing since many years.
  • • Cuts number of employees by 600
  • • Shares were down $7.36, or 19%, at $32.40

EB shipped and average capacity per drive

Now 92% of Seagate's revenue are on HDDs and 8% in other businesses (enterprise systems, flash and others).

This bad situation could explain the replacement of Steve Luczo by Dave Mosley as CEO effective next October being in charge to find a new business model for the company to try to expand, as it is almost totally concentrated on HDDs becoming a shrinking market, and never becoming a leader in SSDs. Without any change Seagate's sales could be below $10 billion next fiscal year.

Revenue is expected to be a little better next quarter: between $2.5 to 2.6 billion.

FY revenue in $ billion

FY Revenue Y/Y growth
2011 10,971 NA
2012 14,939 36%
2013 14,351 -4%
2014 13,724 -4%
2015 13,739 0%
2016 11,160 -19%
2017 10,771 -4%


The manufacturer has decided once more not to reveal HDD unit shipments estimated between 34.5 to 35.5 million by Trendfocus, but only exabytes per product. Here its is:

HDD mix trends

  3Q17 4Q17
EB enterprise mission critical 2.3 2.2
EB enterprise nearline 21.4 21.2
EB client non-compute consumer electronics 13.6 12.4
EB client non-compute consumer 10.8 9.5
EB client compute, desktop+notebook 17.3 16.8
Enterprise as % of total revenue 36% 37%
Client non-compute as % of total revenue 29% 29%
Client compute as % of total revenue 26% 25%


Revenue by products in $ million

  3FQ17 4FQ17 Growth % of total revenue
HDDs 2,424 2,220 -8% 92%
Enterprise systems, flash and others 250 186 -36% 8%

Seagate's HDDs from 3FQ14 to 4FQ17

Fiscal period

HDD ASP

Exabytes Average
shipped GB/drive
3Q14 $61 50.8 920
4Q14 $60 49.6 945
1Q15 $60 59.9 1,007
2Q15 $61 61.3 1,077
3Q15 $62 55.2 1,102
4Q15 $60 52.0 1,148
1Q16 $58 55.6 1,176
2Q16 $59 60.6 1,320
3Q16 $60 55.6 1,417
4Q16 $67 61.7 1,674
1Q17  $67  66.7  1,716
2Q17  $66  68.2  1,709
3Q17  $67  65.5 1,800
4Q17 $64 62.2 1,800

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Abstracts of the earnings call transcript:

Steve Luczo, chairman and CEO:
"We saw strength in the quarter from our largest nearline U.S. based CSP customers and relative seasonal demand in the compute and branded markets. Offsetting this was weakness in our enterprise storage customers, including traditional OEM nearline and mission critical demand, China CSP nearline demand, and our own cloud storage systems business. In addition, there was weakness in the surveillance and NAS markets due to some intra quarter channel inventory management.
"As a result, our overall revenue results were approximately 5% below plan, with approximately half of that shortfall from our cloud storage systems and half from HDD enterprise weakness and channel inventory management. We believe some of these factors, particularly China CSP demand and NAS and surveillance market demand, are temporal and supply chain related, while some of the OEM revenue declines are more structural.
"Our non-GAAP margin results of 28.9% were approximately 210 basis points below our guidance. Within this, approximately two-thirds of the impact was due to operational trends issues in our CSSG business and approximately one-third was due to lower than expected enterprise and surveillance HDD portfolio mix."

Dave Morton, CFO:
"For the enterprise market we shipped 23.5 exabytes, with an average capacity per drive of 3.4TB. Our average capacity per drive for our nearline products has reached over 4.8TB per drive, up 8% over last year's strong 8TB sales quarter and up 60% from the June quarter two years ago.
"We continue to ramp our 10TB nearline product and shipped approximately 300,000 units in the June quarter. Our sales for this capacity point have almost doubled over the last two quarters. And we expect to ship approximately 1 million 10TB units in the September quarter. In addition, our 12TB product shipped for revenue in the June quarter with excellent customer feedback. And we are confident our qualification process is competitive. We expect to achieve approximately 50% of the exabyte share within the 10TB and 12TB market by the end of the calendar year.
"In the client and retail markets our 1TB per platter, 2.5-inch platform continues to perform well. And to date, we have shipped over 45 million drives, substantially ahead of the competition."

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