Saturday, January 15, 2011

Seagate Technology (NASDAQ: STX): Q2 Earnings Preview 2011

Seagate Technology PLC (NASDAQ: STX) is scheduled to release its fiscal second-quarter earnings after the closing bell on Wednesday, January 19, 2011. Analysts, on average, expect the company to report earnings of 33 cents per share on revenue of $2.72 billion. In the year ago period, the company reported earnings of $1.04 per share on revenue of $3.03 billion.

Seagate Technology engages in the design, manufacture, marketing, and sale of hard disk drives for the enterprise, mobile computing, desktop, consumer electronics, and branded solutions market applications of the disk drive industry in North America, the Far East, and Europe. The company sells its disk drives primarily to major original equipment manufacturers (OEMs), distributors and retailers. In addition to manufacturing and selling disk drives, the company provides storage services for small- to medium-sized businesses, including online backup, data protection and recovery solutions.

In the preceding fiscal first-quarter, the Dublin, Ireland-based company's net income was $149 million, or 31 cents a share, compared to $179 million, or 35 cents a share, in the year-ago quarter. On an adjusted basis, the company earned 37 cents a share in the latest quarter. Revenue rose 1.5% to $2.7 billion from $2.66 billion. Analysts, on average, expected the company to report earnings of 45 cents per share on revenue of $2.72 billion.

Late in November, the company ended talks with private equity firms regarding a going private deal, as it concluded that the valuation being offered was not in the best interest of the company and its shareholders.Seagate had announced in October that it had “received a preliminary indication of interest” regarding its plan to go private. Seagate also said that its board of directors has authorized the company to repurchase up to an additional $2 billion of its outstanding ordinary shares to boost shareholder value. The company also said that for its fiscal second-quarter it expects revenue to be at least $2.7 billion and gross margin of at least 19.5%. “Seagate management believes that the demand for hard disk drives has improved, and the current expectation for the total available market in the December 2010 quarter is approaching 170 million units,” the company said.

The company has continued to benefit from strong demand for data storage hardware as more consumers create, share, and store increasingly rich digital content such as digital photographs, music, videos, and other multimedia files. The hard disk drive industry has also got a boost from improving corporate technology spending and increased interest in cloud services. According to the market research firm iSuppli, HDDs are expected to receive a late-year boost during the holiday season as shipments rally during the final quarter. iSuppli says HDD shipments will reach an estimated 169.2 million units during the last three months of the year, up more than 2 percent from 165.5 million units in the previous quarter.

However, industry experts believe that the demand for hard disk drives is likely to slow down due to the growing popularity of tablet PCs and other handheld devices. Typically, handheld devices like tablets use NAND flash memory instead of traditional hard disk drive for storage. Seagate is currently focusing primarily on enterprise-class solid-state drives.

In terms of stock performance, Seagate shares have lost nearly 20 percent over the past year.

Full Disclosure: None.
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