What To Expect From Seagate In Fiscal 2019?

Seagate Technology (NASDAQ: STX) saw low single-digit top line growth while its adjusted earnings were up in the high twenties percent for the first half of fiscal 2019. This can be attributed to higher demand for the high capacity HDD product portfolio. However, price erosion adversely impacted the overall sales growth. There is a slowdown in overall HDD demand, and this will likely impact the company’s near term growth. We have created an interactive dashboard analysis ~ How Did Seagate Fare In Fiscal 2018, And What Can We Expect In Fiscal 2019? You can adjust various drivers to see the impact on the company’s earnings and price estimate. In addition, here is more Information Technology data.

Expect Revenues To Decline In Mid-Single-Digits In Fiscal 2019

Seagate’s revenue growth in the first half of fiscal 2019 was primarily led by its client non-compute group, which was up in the high teens. The segment includes revenues generated by sales of hard drives for consumer electronics, including gaming consoles, along with the sales of branded external hard drives sold via the retail channels. Demand for increased capacity in gaming is aiding the segment growth. However, the overall softness in HDD demand could result in a slower growth rate for the full year. Client compute group, which includes sales of hard drives for laptops and desktops, saw sales down in mid-single-digits in H1 FY19. The overall PC market saw a low single-digit decline in shipments in calendar year 2018, marking it to be the seventh consecutive year to witness a decline in shipments. However, looking at calendar year 2019, the PC market is expected to see modest growth. Looking at the enterprise business, revenues were down in high single-digits in H1 FY19. However, the transition to higher capacity storage should drive the demand for the enterprise business. The current slowdown is likely to be more of a near-term issue, with the longer-term fundamentals of the storage market remaining strong.

The near term headwinds can be attributed to the trends in NAND memory pricing, which have seen significant declines over the last year, as major vendors largely completed the transition from planar NAND to 3D NAND, boosting supply. Moreover, prices for DRAM have been trending lower, and they are expected to correct further. This has resulted in an overall reduction in pricing, but at the same time many customers are now willing to upgrade their storage capacity. For Seagate, the contribution of flash-based storage to its overall revenues is minimal, and it has thus not seen any significant impact on its top and bottom line, unlike its peers, such as Western Digital (See ~ What To Expect From Western Digital In Fiscal 2019?). Also, the foreign tariffs imposed primarily on China have resulted in weaker demand, and the economy is seeing slower growth.  China’s growth is projected to decelerate from an estimated 6.6% in 2018 to 6.2% in 2019. Note that Asia Pacific accounts for half of the company’s revenues, and a slowdown in China will have an impact on Seagate’s performance as well. The company has guided for a slight decline in its adjusted margins, amid weaker demand. We forecast the adjusted earnings to be $4.48 per share in fiscal 2019, reflecting a decline in the high teens. Our price estimate of $52 for Seagate is based on a 12x forward price to earnings multiple.

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