Seagate’s Growth Fueled By Growing Storage Demand Despite Slow Notebook Market

by Trefis Team
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Seagate Technology PLC (NASDAQ:STX), a leading provider of electronic data storage products such as hard disk drives for personal storage and enterprise applications announced its Q2 FY 2013 earnings on January 28. The company benefited from higher average selling prices due to improvements in high-end enterprise and consumer storage devices. It ended the quarter on a strong note despite falling demand due to a weak PC market.

The company experienced weakness in the notebook market in Q2, but all other divisions showed q-o-q growth as it shipped 58 million units in Q2. Seagate reported Q2 revenue of $3.66 billion, up 15% y-o-y. Costs, however, are a concern as income from operations declined 8% y-o-y to $555 million while net income fell 12% to $499 million. [1]

Outlook For Q3

The company expects the total addressable market to be flat to down in Q3, and for the March quarter, it expects revenues of approximately $3.25 – $3.45 billion.

Growth In High Definition Digital Content Drives Storage Requirement

Storage requirements are going up as evidenced by the fact that Seagate shipped over 47 exabytes of storage in Q2 with each disk averaging approximately 823 gigabytes. This is a 59% y-o-y exabyte growth, and this demand is being driven by cloud computing and growth in digital content.

According to Cisco, the global cloud traffic will grow at an annual rate of 45% and reach 4.3 zetabytes by 2016 while global data center traffic will grow to 6.6 zetabytes. Nearly 20% of this data will be solely due to online video streaming, email and music. Seagate is leveraging this end-user content creating phenomenon with value add products focusing on consumers such as DVR backups and wireless backup networks as well as media storage devices designed to connect easily with different media sources such as TVs, radios and gaming consoles.

The Rise Of The Tablet Computer

All tablet computers use solid state memory chips as their primary storage memory, and we estimate that tablet sales will outstrip notebook and netbook sales by the end of our forecast period. HDD memory is less responsive, slower and bulkier and so are not used in tablet computers. The increasing popularity of tablet computers is the primary reason for growth in the SSD space. We estimate that tablet computer sales will outstrip laptop sales by the end of our forecast period, and this is a major trend shaping the storage industry.

Growth In Cloud Computing And Remote Storage Services

We expect Seagate’s enterprise business to be driven by businesses deploying cloud computing environments in an effort to pool resources and cut costs. Remote storage is becoming a standard for most enterprises and has even gained traction with retail customers with services like iCloud, Dropbox, Skydrive and Google Drive. To achieve the high performance needed with cloud computing, we expect the hybrid SSD-HDD enterprise storage drives to become popular in the future.

We currently have a $38.15 Trefis Price Estimate for Seagate, which is in-line with its current market price.

  1. Seagate Earnings,, Jan 28 2013 []
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