Seagate: Fiscal 4Q10 Financial Results

Seagate Technology plc reported financial results
for the quarter ended July 2, 2010 of 46.8 million disk drive unit
shipments, revenue of $2.66 billion, gross margin of 27.4%, net
income of $379 million and diluted earnings per share of $0.76.

The financial results for the quarter include $6 million of purchased
intangibles amortization expense, $16 million of restructuring charges,
$3 million expense (Other income/expense) for the May 2010 termination
of Seagate’s revolving credit facility offset by a $6 million recovery
of previously impaired long-lived assets and a $50 million income tax
benefit due principally to valuation allowance adjustments related to
deferred tax assets. The aggregate impact of these items was a $31
million increase to net income or approximately $0.06 per diluted share.

For the fiscal year ended July 2, 2010 the company reported 193.2
million disk drive unit shipments, revenue of $11.4 billion, gross
margin of 28.1%, net income of $1.61 billion and diluted earnings per
share of $3.14. The financial results for the fiscal year ended July 2,
2010 include $35 million of purchased intangibles amortization expense,
$66 million of restructuring costs, $3 million expense (Other
income/expense) related to the May 2010 termination of the revolving
credit line, a net write down of long-lived assets of $57 million offset
by a $50 million income tax benefit due principally to valuation
allowance adjustments related to deferred tax assets. The aggregate
impact of these items was a $111 million reduction of net income or
approximately $0.22 per diluted share.

“I’m very encouraged by our financial and operational performance
throughout fiscal 2010,” said Steve Luczo, Seagate chairman,
president and CEO. “In fiscal year 2010 we delivered record
shipments, profitability and operating margin. The company responded
well to the increase in global hard drive demand, which grew 22%
year-over-year, introduced key new products, continued to strengthen the
capital structure, and remained focused on improving key business
fundamentals to position Seagate for future growth.

“Specific to our fiscal fourth quarter, two of our key assumptions
entering the quarter did not materialize as expected and impacted our
financial results – macro-economic stability and pricing reflective of
balanced supply and demand. Industry demand in the fiscal fourth quarter
was at the low end of our expectations due primarily to issues
emanating from the debt crisis in Europe and slowing consumer spending
especially in the U.S. and Europe. The lower unit shipments and
unfavorable pricing at some key capacity points impacted Seagate’s
ability to deliver revenue and earnings for the quarter within our
target range. Despite these factors, Seagate reported the highest
operating results for a June quarter in the company’s history.”

Disk Drive Market Commentary
Beginning with this quarter’s report, Seagate has changed how it
provides data and commentary related to the various market categories
that exist. The major market categories that will be discussed are 1]
Enterprise, 2] Client Compute, 3] Client non-Compute. A disk drive is
associated with one of these three market categories based on how it is
configured. For example, if a customer buys a standard 2.5-inch ATA
drive from Seagate, this would be included in the Client Compute
category regardless of the application into which the drive is
ultimately integrated. The Client non-Compute category will only contain
drives specifically designed or configured for non-compute
applications.

Enterprise Products
The TAM for enterprise class disk drives, which includes disk drives for
both mission critical and nearline applications, was approximately 12
million units. Mission critical products continue to represent the
bulk of the TAM at just over 7 million units. Seagate shipped 4.7
million drives for mission critical server and storage applications and
1.8 million drives for nearline applications during the quarter,
representing a 31% increase and 38% increase year-over-year,
respectively. Seagate expects the TAM for enterprise class drives to be
slightly up in the September quarter.

Client Compute Products
The TAM for client compute disk drives, which includes disk drives
designed for use in mobile and desktop computers, was approximately 110
million units up 16% year-over-year. The mobile TAM was
approximately 60 million units, up 25% year-over-year, while the desktop
TAM was approximately 50 million units, up 6% year-over-year. Seagate
shipped in total 31.8 million client compute disk drives in the June
quarter. Mobile drives accounted for 12.2 million units and desktop
drives for 19.6 million units, which represents year-over-year growth of
22% and 3%, respectively. Inventory of Seagate 3.5-inch ATA (desktop)
disk drives in the distribution channel at the end of the quarter was
approximately 4 weeks on hand, which is the low end of Seagate’s
targeted range. For the September quarter, Seagate expects the client
compute TAM to increase seasonally.

Non-compute Market
The non-compute market consists of disk drives specifically configured
for consumer electronic (CE) applications plus Seagate branded products
sold at retail. The June quarter TAM for the non-compute market was
approximately 34 million disk drives, comprised of 20 million
CE drives and 14 million for branded products, which represents
year-over-year growth of 23% and 21%, respectively. In the June quarter,
Seagate shipped 5.9 million CE disk drives, an increase of 48%
year-over-year and 2.6 million Seagate branded storage products, down
4% year-over-year. For the September quarter, Seagate expects the
non-compute TAM to be seasonally higher.