Seagate (STX) Bad Quarter As Expected - Wells Fargo
Wells Fargo analyst, Maynard Um, cut his valuation range on Seagate Technology (NASDAQ: STX) to $21-$23 from $28-$32 but maintained his Market Perform rating as there were some positives to indicate a turnaround in the distant future.
STX’s revenues were in line with its prerelease. Demand weakness and gross margins continue to be problems fo rthe company. Demand weakness was in mission-critical enterprise drives, PCs hard disk-drives (HDDs) and the systems business. This was partially offset by some strength in capacity enterprise drives. Gross margins have been a problem as well, declining 290bps sequentially segmented by a 70bps decline in HDD, 80bps in systems and 180bps from lower utilization.
Positives include:
1) Nearline demand was better than expected by 500k units and gained share in the 8TB market,
2) Nearline demand is expected to remain strong in FQ4 and STX likely had a backlog (fulfilled only 350k of upside)
3) taking actions to reduce manufacturing capacity from 55-60MM units to 35-40MM
4) capex was lower than expected and likely to remain low in FY17 ($400MM)
5) reduced inventories by $118MM (11% seq.)
6) increased prices across product lines with varying degree of success
7) expects margins to improve over time and the company is driving toward at least $2.50 in EPS in CY17.
Negatives include:
1) mission-critical enterprise drive demand was weaker than expected and expected to continue to decline in June
2) gross margins declined 290bps seq.
3) June quarter rev guidance was below our and consensus revised estimates
4) PC demand was weak, particularly desktop client in China
5) $150MM in restructuring charges over the next few quarters to impact cash flows
6) unlikely to repurchase equity or debt in the near-term.
For an analyst ratings summary and ratings history on Seagate Technology click here. For more ratings news on Seagate Technology click here.
Shares of Seagate Technology closed at $21.77 yesterday.