STX Seagate Technology Holdings PLC

Improvement in hard drive shipments during December 2011 has enabled Seagate Technologies Plc. (STX) to increase its revenue outlook for the ongoing quarter ending in March. Following the announcement, the company’s stock jumped more than 7.0%.

Although Seagate was initially apprehensive about how its business would be impacted by the floods in Thailand, it did in fact emerge as a beneficiary of the event.

The current scenario is extremely beneficial for Seagate. The company’s nearest rival Western Digital Corp. (WDC) has been tremendously affected by the flood, and given the commoditized nature of the market, Seagate is expected to drive significant market share and also raise unit prices.

The hard disk drive major is expected to report its second quarter results ending December 31, in January with revenue coming in the range of $3.1 billion to $3.2 billion, above the street estimate of $2.8 billion. The company reported that it had shipped 47 million disk drives in the second quarter, higher than its previous estimate of 43 million drives. Out of these 47 million disk drives, approximately 700,000 came from Samsung, as Seagate recently acquired the disk-drive business of the company for $1.38 billion.

Seagate expects unit shipments to increase in the third quarter ending March 31, as compared with the December quarter and projects revenues of $4.2-$4.5 billion, excluding any integration costs.

Seagate’s position in the HDD vertical looks impressive, though we think that the uncertainty in the PC market will pose a serious threat. The growth of tablets is cannibalizing the usage of HDDs, while increasing the 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.

 
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