Seagate (STX) May Emulate Icarus as Thai Flood Curtails
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Seagate (NYSE: STX) could see a little more upside for the fourth-quarter, after Thai flooding may push the company as the number 1 hard disk drive (HDD) shipper ahead of rival Western digital (NYSE: WDC).
What about beyond that?
Following tragic flooding in Thailand through October, Seagate shares surged as the company said it had little exposure to the brunt of the flood waters.
After shipping 58 million HDDs in the third-quarter, grabbing 33 percent of the total market share, rival Western Digital is expected to have a 60 percent decline in shipments in the fourth quarter due to the flood impact.
Seagate will most likely take the top spot, even as the WSJ notes its supplier challenges will reduce shipments by 11 to 19 percent in the quarter. The shortage of HDD shipments means that prices will improve, and Seagate has said it expects gross margins to move from 19.5 percent last quarter to 26 percent this quarter.
What does that mean for investors? The increase in margins likely points to EPS doubling in the quarter.
But will the exceptional quarter wreak havoc on its stock price? The 50 percent surge may have already priced in potential upside, and doubling EPS over one-quarter is certainly an unusual event. Further, tablets and Ultrabooks don't use HDDs, favoring solid-state drives instead. With PC demand likely to wane as other mobile devices continue to grab market share, investors might want to brace for impact as reality begins to sink in instead of having to grab for a life preserver.
On the outlook, Seagate is about 3 percent lower Tuesday.
What about beyond that?
Following tragic flooding in Thailand through October, Seagate shares surged as the company said it had little exposure to the brunt of the flood waters.
After shipping 58 million HDDs in the third-quarter, grabbing 33 percent of the total market share, rival Western Digital is expected to have a 60 percent decline in shipments in the fourth quarter due to the flood impact.
Seagate will most likely take the top spot, even as the WSJ notes its supplier challenges will reduce shipments by 11 to 19 percent in the quarter. The shortage of HDD shipments means that prices will improve, and Seagate has said it expects gross margins to move from 19.5 percent last quarter to 26 percent this quarter.
What does that mean for investors? The increase in margins likely points to EPS doubling in the quarter.
But will the exceptional quarter wreak havoc on its stock price? The 50 percent surge may have already priced in potential upside, and doubling EPS over one-quarter is certainly an unusual event. Further, tablets and Ultrabooks don't use HDDs, favoring solid-state drives instead. With PC demand likely to wane as other mobile devices continue to grab market share, investors might want to brace for impact as reality begins to sink in instead of having to grab for a life preserver.
On the outlook, Seagate is about 3 percent lower Tuesday.
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