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Seagate Lowers Revenue From $2.7 Billion to $2.6 Billion for 3FQ16

Down 13% Q/Q and 22% Y/Y

Seagate Technology plc announced selected preliminary financial information for its fiscal third quarter of 2016, which ended on April 1, 2016.

Seagate expects to report revenue of approximately $2.6 billion and non-GAAP gross margin of approximately 23% for the fiscal third quarter 2016.

The company expects to report HDD unit shipments of approximately 39 million, representing approximately 40% market share.

These preliminary results compare to the company’s previous forecast for fiscal third quarter 2016 of revenue of approximately $2.7 billion and non-GAAP gross margin of approximately 25.6%.

The difference in the company’s revenue and non-GAAP gross margin from its forecast was driven primarily by reduced demand for traditional mission critical HDD enterprise products, reduced demand for the company’s systems and silicon products, reduced demand for desktop client products primarily in China, and the company’s decision to not aggressively participate in the low capacity notebook market.

The reduced demand in the quarter combined with focused inventory reductions decreased the company’s utilization of certain factories. Offsetting some of the quarter’s demand weakness was stronger than expected demand for the company’s 8TB nearline products, reflecting the company’s belief that an increasing level of enterprise applications are shifting to cloud environments.

We are disappointed that we did not anticipate the weaker demand in the March quarter. There are many complex issues impacting the traditional go to market channels in our market, which are reducing our forecast visibility. Despite the disruption of the shifts in our traditional mission critical HDD business in the near term, we believe the long term benefit of cloud architectures for end users, and the related need for very high capacity drives, is a net positive for Seagate and the HDD industry,” said Steve Luczo, chairman and CEO.

Non-GAAP operating expenses for the fiscal third quarter are expected to be approximately $438 million, slightly lower than forecasted non-GAAP operating expenses.

The company is in the process of prioritizing our strategic positioning, manufacturing footprint and operating expense investments to achieve the appropriate level of normalized earnings. We anticipate that these actions will be implemented over the next several quarters,” said Luczo.

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