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Seagate: Fiscal 3Q17 Financial Results

Being in HDD only, future of company questionable

(in $ million) 3Q16 3Q17 9 mo. 16 9 mo. 17
Revenues 2,595 2,674 8,506 8,365
Growth   3%   -2%
Net income (loss) (21) 194 178 658

Seagate Technology plc reported financial results for the third quarter of fiscal year 2017 ended March 31, 2017.

For this quarter, the company reported revenue of $2.7 billion, gross margin of 30.5%, net income of $194 million and diluted earnings per share of $0.65. On a non-GAAP basis, which excludes the net impact of certain items, Seagate reported gross margin of 31.4%, net income of $329 million and diluted earnings per share of $1.10.

During the third quarter, the company generated $426 million in cash flow from operations, paid cash dividends of $186 million, and raised $1.25 billion in investment grade debt. Cash, cash equivalents, and short-term investments totaled approximately $3.0 billion at the end of the quarter. There were 297 million ordinary shares issued and outstanding as of the end of the quarter.

The results of our financial performance this quarter reflect a stable demand environment, good operational execution and momentum in the stabilization of our business model,” said Steve Luczo, Seagate’s chairman and CEO. “With a market-leading and cost-efficient storage solution portfolio, Seagate is well positioned to support our existing and new customers in a world of accelerated data creation and increased storage needs driven by emerging technologies and new business models. We will continue to focus on future growth opportunities, generating profits and building lasting value for our shareholders.”

The board of directors approved a quarterly cash dividend of $0.63 per share, which will be payable on July 5, 2017 to shareholders of record as of the close of business on June 21, 2017.

Comments

Now 91% of Seagate's revenue are on HDDs and 9% in other businesses (enterprise systems, flash and others). As the market of HDDs is lowering, it's the same trend for the company that didn't invest seriously in other activities like competitor Western Digital acquiring SanDisk. This means also that growth in the future of the company is questionable.

For 3FQ17, sales were up 3% Y/Y at $2,674 million - short of prior guidance of $2.7 billion - and down 8% Q/Q. Net income is down 35% sequentially to $194 million.

You can expect lower revenue for the fiscal year ended in three months as next quarter expectation for revenue is lower, between $2.5 billion to $2.6 billion. It was $11.16 billion in FY16 and will be between $10.9 billion and $11.0 billion in FY17.

The firm cites the desire of the company to maintain lower inventories going into the summer months and some conservatism due to the potential impact of component shortages in DRAM and NAND on various aspects of customers' businesses in the server, CSP and client space. But it continues to expect overall exabyte demand to grow double digits in calendar 2017 over 2016, representing modest revenue growth opportunities for Seagate.

Exabytes shipped decreased 4% quarterly with ASP of HDDs at $66 ($67 for the former quarter) and average capacity per drive at 1.8TB (1.7TB for the former quarter).

The manufacturer has decided for the first time since a long time not to reveal HDD unit shipments but only more favorable exabytes per product. Here its is:

HDD mix trends

  2Q17 3Q17
EB enterprise mission critical 2.6 2.3
EB enterprise nearline 21.6 21.4
EB client non-compute consumer electronics 14.8 13.6
EB client non-compute consumer 12.1 10.8
EB client compute, desktop+notebook 17.1 17.3
Enterprise as % of total revenue 37% 36%
Client non-compute as % of total revenue 31% 29%
Client compute as % of total revenue 21% 19%


Here are some comments of Steve Luczo, chairman and CEO:
"Our cloud systems and silicon group demonstrated 19% year-over-year growth in the March quarter, with particular strength in our flash-based solutions.
"By this time next year, we anticipate less than 10% of our HDD technology portfolio will be exposed to competing flash devices.
"Customer evaluation feedback on our 12TB helium HDDs has been positive, and we plan to start volume shipments in the June quarter.
"From an R&D technology perspective, we continue to invest in our next-generation areal density HAMR technology with products on the road map for the late 2018 calendar year."

On his side, Dave Morton, EVP and CFO, stated:
"HDD enterprise revenues were up 3% year-over-year, reflecting exabyte growth of 20% year-over-year and representing 36% of our total consolidated revenue. Within this, nearline revenues were up 9% year-over-year and represented 24% of our total consolidated revenue. Hyperscale nearline revenues were up strong double digits, and our 8TB nearline product continues to be our leading revenue SKU.
"Our HDD client high-capacity growth opportunities include consumer, surveillance, DDR and NAS markets. Revenues from these markets were up 25% year-over-year, reflecting exabyte growth of 41% year-over-year and representing approximately 28% of the total consolidated revenue. Average capacity per drive across these markets was over 2 terabyte per drive, up 22% year-over-year.
"In our mature mission critical and PC client markets, revenues declined year-over-year, as expected, and exabytes declined slightly. PC client revenues continue to represent approximately 25% of the total consolidated revenue."

We will publish tomorrow the financial results of Western Digital. The consensus is revenue of $4.58 billion, a jump of 62% year over year including SanDisk and a decrease of 6% Q/Q, for the period ended March 31.

Revenue by products in $ million

  2FQ17 3FQ17 Growth % of total revenue
HDDs 2,852 2,424 -15% 91%
Enterprise systems, flash and others 242 250 3% 9%

Seagate's HDDs from 3FQ14 to 3FQ17

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

To read the earnings call transcript

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