Seagate Shares Climb on Upbeat View - Analyst Blog
30 Novembre 2011 - 5:50PM
Zacks
Seagate Technologies plc’s (STX) shares are
trading higher these days on better-than-expected revenue guidance
for both the December and March quarters. Recently, the hard disk
drive (HDD) manufacturer provided a financial update, indicating
that shipments for December would be around 43 million units
(versus the most recent guidance of 40–50 million) and revenue of
roughly $2.80 billion.
The revenue guidance is far better than the Street expectation
of $2.69 billion. The gross margin is expected to be roughly 15–20%
higher than the company’s long-term goal of as much as 26.0%.
Seagate noted that while its own Thai facilities were not
affected by the flooding, it may face challenges in making hard
drives because of difficulties in getting parts. Hence, assuming
some impact, the HDD manufacturer has narrowed its expectation for
unit shipments. On the other hand, Seagate provided an upbeat
guidance for revenue and margins. This could be due to demand for
HDDs surpassing supply.
The floodwaters that have engulfed much of the industrial
regions in Thailand have spared both Seagate factories. But the
majority of production facilities (roughly 60% of the world’s HDD
production is in Thailand) have been stalled, leaving the HDD
supply disruption inevitable.
The situation is extremely beneficial for Seagate. Its nearest
rival Western Digital Corp. (WDC) has been
tremendously affected by the flood, with the commoditized nature of
the market opening up an opportunity for Seagate to build market
share and raise unit prices.
Moreover, with the pending Samsung acquisition, management
believes the company's capacity will be approximately 70 million
units in the March quarter of 2012. All these factors make the
company’s outlook appear achievable to us.
For the March quarter, Seagate expects revenue of at least $3.75
billion and gross margin of at least 29%. This guidance includes a
full contribution from Samsung and assumes fairly stable pricing
moving forward. Overall, Seagate expects its component suppliers to
ship enough parts for the hard-disk drive companies to normalize
the supply chain next year.
Seagate’s position in the HDD vertical looks impressive, though
we think that the uncertain PC market situation will not allow easy
growth. The growth of tablets is cannibalizing the usage of HDDs,
while increasing usage of SSDs (solid state drives).
We believe that Seagate’s strong foothold in the Enterprise SSD
market will help it to generate healthy revenue growth in fiscal
2012 and beyond, which in turn will improve margins.
Currently, Seagate has a Zacks #2 Rank, implying a short-term
Buy rating.
SEAGATE TECH (STX): Free Stock Analysis Report
WESTERN DIGITAL (WDC): Free Stock Analysis Report
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