Seagate: Fiscal 1Q10 Financial Results

(in US$ millions)	1Q09	1Q10
Revenues	3,033	2,663
*Growth*		-12%
Net income (loss)	57	179

Seagate Technology reported financial results for the quarter ended October 2, 2009 of 46.3 million disk drive unit shipments, revenue of $2.66 billion, gross margin of 24.5%, net income of $179 million and diluted earnings per share of $0.35.

The financial results for the quarter include $10 million of purchased intangibles amortization, $46 million of restructuring and a write down of long-lived assets of $64 million. The aggregate impact of these items is $120 million or approximately $0.23 per share.

During the first fiscal quarter, Seagate reduced short-term borrowings and long-term debt by approximately $465 million primarily with the maturity of its $300 million floating rate senior notes and by paying down its revolving credit facility by $150 million. Subsequent to the end of the first fiscal quarter, Seagate paid off the remaining balance of its revolving credit facility of $200 million and made open market purchases of $20 million, bringing the total debt reduction during fiscal 2010 to approximately $685 million.

"At a time when economic conditions remained challenging we are very pleased with the company’s financial performance, delivering strong revenues, margins and cash generation," said Steve Luczo, Seagate CEO. "The company has returned to its operating model well ahead of our expectations of six months ago and now expects to sustain gross margin of 22-26%. Although mission critical enterprise demand in particular has yet to recover to historical levels, we benefitted from our time-to-market product delivery to customers integrating our notebook, desktop and enterprise drives."

Business Outlook
While visibility has improved throughout the calendar year, the ongoing uncertainty in global economic conditions makes it difficult to predict product demand and other related matters, which makes it more likely that Seagate’s actual results could differ materially from current expectations.

For the December quarter, the company is planning for the overall industry demand for disk drives to be 153 – 160 million units. As a result, the company expects revenue to be approximately $2.75 – $2.85 billion and gross margin as a percent of revenue to be near the high end of the company’s targeted range of 22-26%. In today’s financial results conference call, the company will also provide an update on current and expected business conditions, including key underlying assumptions, for its financial outlook for fiscal year 2010.

The December quarter outlook does not include the impact of any potential new restructuring activities, future mergers, acquisitions, financing, dispositions or other business combinations the company may undertake. The company’s policy is to refrain from commenting on any such activities.

Comments

Abstracts of the earnings call transcript:

William David Mosley, executive VP, sales, marketing and product line management

"Seagate shipped 4 million drives for Mission-Critical server and storage products during the quarter maintaining its leading share position.
"The TAM in the desktop market for the September quarter was approximately 58.4 million units, up 7% sequentially. We believe we maintained our leadership position in this market, shipping 23.3 million units up 6% from the June quarter. We continued to see strong demand for our 500 GB per disk Barracuda drives where we shipped over 14.5 million units.
"For the December quarter we expect the desktop TAM to be flat to slightly up sequentially. In the mobile compute space, the overall TAM was approximately 70.6 million units in the September quarter, up 28% sequentially and 32% year over year. Seagate shipped 13.9 million units, an increase of 22% sequentially and 41% from the year ago quarter.
"Seagate's SSD program is progressing on schedule. We began production in shipped revenue units in September and customer response has been very favorable. To meet customer requirements, the initial product in Seagate's SSD portfolio is targeted at the broad volume server market and has a SATA interface.
"Finally, we have now started the qualification process of the industry's first 2.5 inch 7 mm high hard disk drive. This new slimline product allows our OEM customers to continue to reduce the thickness and weight of their notebook platforms.
"In August we announced plans to close our AMK factory in Singapore and move the hard disk drive manufacturing operations to other Seagate locations."

Patrick J. O'Malley, CFO
"The fiscal year 2010 financial model is based on the following key assumptions; the unit TAM will grow roughly 10%-15% over fiscal year 2009, there will be a return to as seasonal pattern in demand, pricing trends will reflect a balance supply and demand environment, and Seagate will continue to deliver time to market products.
"With these key assumptions, we believe that fiscal year 2010 revenue will be greater than $10.5 billion while diluted GAAP earnings per share would be in excess of $1.90 which includes approximately $155 million or $0.30 per share of restructuring costs, asset write downs, and amortization of purchase intangibles."