Monday, April 18, 2011

Seagate Technology (NASDAQ: STX): Q3 Earnings Preview 2011

Seagate Technology PLC (NASDAQ: STX), the world's largest hard drive disk maker, is scheduled to release its fiscal third-quarter earnings after the closing bell on Tuesday, April 19, 2011. Analysts, on average, expect the company to report earnings of 27 cents per share on revenue of $2.66 billion. In the year ago period, the company reported earnings of $1.03 per share on revenue of $3.05 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 $150 million or $0.31 per share, compared to $533 million or $1.03 per share for the year-ago quarter. On an adjusted basis, the company earned 33 cents a share in the latest quarter. Revenue fell 10% to $2.72 billion from $3.03 billion. Analysts, on average, expected the company to report earnings of 33 cents per share on revenue of $2.72 billion.

Early this month, the hard disk drive maker said that it expects revenue of around $2.7 billion for the fiscal third quarter ended April 1, 2011.  For the quarter, the company expects unit shipments of 49 million and gross margin near or slightly above the high-end of the original outlook range of 18 to 19 percent. The company had shipments of 48.9 million and gross margin of 19.5 percent in the second quarter.

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.  Moreover, the hard-disk-drive sector is poised for a major consolidation after Western Digital unveiled a plan to buy Hitachi Global Storage Technologies. Meanwhile, according to media reports, outh Korean conglomerate Samsung Electronics Co. Ltd. too is seeking to sell its hard-disk drive business. 

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.

To counter a slump in demand for hard disks, Seagate is working to develop alternatives, such as external devices that connect to tablets to deliver music and other content, and so- called hybrid drives, which contain components of both hard disks and the flash drives that are growing in popularity.

Among other developments, the company recently announced that its board of directors approved the payment of a quarterly cash dividend of 18 cents per share. The company will pay the dividend on June 1, to shareholders on record as of May 2. Seagate had suspended its dividend payout policy in April 2009, as the company’s fortunes plummeted along with the economy. Prior to that, Seagate used to pay a quarterly cash dividend of 3 cents per share. 

The company's stock currently trades at a forward P/E (fye Jul 2, 2012) of 8.91 and PEG ratio (5 yr expected) of 2.85. In terms of stock performance, Seagate shares have lost nearly 13 percent over the past year.

Full Disclosure: None.
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