Seagate: Fiscal 3Q21 Financial Results

Comments

Revenue and net income increased slightly Q/Q and Y/Y despite a gloomy global HDD market in 1CQ21.

Shares were down 2% after hours as 3FQ21 beats were offset by revenue guidance that met estimates at the midpoint.

Highlights:
• Grew revenue Q/Q, bucking typical seasonal trends
• Expanded gross margin, operating margin and EPS Q/Q
• Set multiple new quarterly records including mass capacity revenue and total HDD exabyte shipments
. Average capacity per drive increased 17% sequentially to pass the 5TB mark, a milestone
• Solid shipment growth of 16TB and 18TB contributing to 50% of exabyte shipments
• Volume ramp of MACH.2 dual actuator drives with a leading hyperscale customer
• On track to have 4 Lyve Cloud sites by end of calendar year

Mass capacity storage
This market includes mission critical, desktop, notebook, digital video recorders, gaming consoles and consumer applications.
• Strong cloud data center demand and ongoing recovery in the enterprise nearline markets
• Video and Image Applications (VIA) demand strengthening in 4FQ21 following the anticipated seasonal slowdown in 3FQ21
• Expected CY21 mass capacity exabyte growth consistent with 35% long-term CAGR
• Strong demand for mass capacity products supported record HDD capacity shipment of 140EB, up 8% Q/Q and 16% Y/Y. Nearly 80% of total exabytes were shipped into the mass capacity markets, which include nearline, data and image application or DIA and NAS products. Mass capacity shipments increased to a record 111EB in 3FQ21, up 21% compared with 3FQ20, which was prior shipment record. Based on current outlook, exabyte shipment growth should continue through the calendar year, consistent with long-term CAGR forecast of about 35%.
. Customers are currently testing 20TB HAMR drives

Ongoing demand for high capacity nearline drives led to record mass capacity revenue of $1.6 billion, up 8% sequentially and up 5% compared with the prior year period. Mass capacity represented about 65% of total HDD revenue.

Nearline revenue increased sharply Q/Q, driven by strong recovery from enterprise and OEM customers, as well as healthy growth from cloud. Nearline shipments were 95EB, up 34% Q/Q and 25% Y/Y. Average capacity for nearline drives increased to 12TB, driven by the strength of high capacity drives. 16TB and higher capacity contributed approximately 50% of 3FQ21 exabyte shipments. Demand trends in the VIA market are playing out much as the company expected due to seasonality. Revenue declined sequentially in 3FQ21 from the record demand in 2FQ21.

Legacy markets
• Improving enterprise mission critical sales and relatively stable desktop PC demand dampened typical seasonal slowdown
• Stable demand for mission critical and consumer drives expected to moderate pace of year-over-year revenue declines

The legacy market made up 35% of 3FQ21 HDD revenue. This market held up well in the seasonally slower period with revenue of $864 million, down 5% Q/Q and 11% Y/Y. Improving demand for mission critical drives and stronger than anticipated demand for desktop PC partially offset anticipated decline in consumer drives. The firm shipped a total of 29EB into the legacy market, down 9% on a sequential basis, offsetting the lower mix of consumer drives.

The company expect revenue for next quarter to be in the range of plus or minus 5%, supported by continued strength from cloud data center and enterprise customers along with increasing demand from VIA market.

It expects annual revenue growth of at least 10% in calendar year 2021, as the shift towards the less seasonal mass capacity markets supports a more stable revenue outlook through the year.

Revenue by products in $ million

Non-HDD business growth was driven by system business, as Seagate began to ramp revenue from customer wins in 2FQ21. This growth momentum is expected to continue in non-HDD business in 4FQ21.

HDDs from 2FQ15 to 3FQ21

Earnings call transcript