Seagate’s Preliminary Q1 Results Demonstrate Strength In Enterprise Segment
Seagate Technology (NASDAQ:STX) announced preliminary fiscal Q1 results, revising its expected revenue and margin figures upward for the quarter. [1] Seagate’s net revenues for the September quarter are expected to be around $2.8 billion, which is around 4% higher than the company’s prior guidance at the end of Q4. [2] Higher than anticipated demand for enterprise-grade hard drives sold during the quarter has led to higher expected revenues.
In addition to the revenue growth, a favorable mix of high-end hard drives has also helped improve company-wide gross margin to around 29% for the quarter. The company previously estimated gross margins of around 27% for the September quarter. As a result, the non-GAAP gross margin is well within the company’s long-term projected margin range of 27-32%.
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As shown in the table above, Seagate’s non-GAAP operating expenses are expected to be around $470 million for the quarter, a 6% y-o-y decline. The slight sequential increase in operating expenses is attributable to higher variable compensation expenses related to a better performance during the quarter. In July, Seagate announced its intention to reduce the global workforce by 6,500 employees by the end of fiscal year 2017, which would reduce its global workforce by 14%. [3] This should further help the company reduce operating expenses and improve profitability.
Despite an improvement in revenue estimates from previous guidance, Seagate’s projected net revenue for the quarter is around 4% lower on a year-over-year basis. The primary reason for the revenue decline is lower shipments. As shown in the table above, Seagate’s net shipments for the quarter are expected to be around 39 million units, which is a 17% year-over-year decline. Most of the decline in unit shipments is attributable to low demand for PC and laptop units globally.
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- Seagate Technology Announces Preliminary Financial Information For Fiscal First Quarter 2017, Seagate Press Release, October 2016 [↩]
- Seagate Q4 FY 2016 Earnings Call Transcript, Seeking Alpha, August 2016 [↩]
- Seagate to cut 6,500 jobs worldwide as PC market continues to slide, Silicon Republic, July 2016 [↩]