Can Seagate’s Revenue See Any Growth By 2021?

Seagate’s (NASDAQ: STX) revenue has dropped by around $400 million from 2017 to 2019, and we expect it to grow by a meager $10 million, to around $10.40 billion in 2021. Revenue growth of $80 million from the Client Non-Compute Segment and $170 million from Enterprise & Cloud Storage are to be the key drivers of revenue, but a drop in client compute revenue of around $240 million means that revenue is only expected to grow from $10.39 billion in 2019 to $10.40 billion in 2021.

Takeaway

• Seagate’s Enterprise & cloud division, which offers cloud storage solutions, is expected to contribute $4.27 billion to total revenue in 2020, making up 41% of Seagate’s $10.43 billion revenue estimate.
• The client non-compute segment, which mainly offers external storage devices, comes in at a close second, making up around 40% of 2020’s revenue estimate, expected to bring in $4.21 billion.
• Seagate’s client compute business is expected to add $1.96 billion in 2020, which is 19% of the total revenue estimate.
• However, despite Seagate’s total revenue being more or less stagnant between 2017 and 2019, Seagate’s share price has risen 40% over this period, largely due to growing margins.
• In our interactive dashboard, Seagate Revenue: How Does Seagate Make Money? we discuss Seagate’s business model, followed by sections that review past performance and 2021 expectations for Seagate’s revenue, and a competitive comparison with Western Digital.

What drives Seagate’s revenue?

• A drop in revenue of about $400 million from 2017-2019, has largely been due to a drop in demand driven by several factors.
• There has been exponential growth in the use of cloud storage, which has emerged as a preference over local storage devices, due to its high reliability and significantly lower costs.
• There has also been a decrease in PC and laptop sales, which has affected Seagate’s Client Compute revenue.
• Enterprise HDD demand has seen a temporary slowdown, but we expect revenue from this segment to grow by 2021, driven by higher enterprise cloud storage sales.
• However, we expect total revenue to largely remain flat between 2019 and 2021 ($10.39 billion in 2019 to $10.40 billion in 2021).

(A) Client Non-Compute Revenue to grow by around $80 million by 2021, with its share of total revenue to be around 40%

• This segment comprises of revenue from the sale of external storage devices.
• The growth in High-Definition personal media and the improving graphics in simulations and video games, would introduce a need for devices with higher storage capacity.
• We expect a slow but steady growth in revenue from this segment, taking it to $4.23 billion by 2021.

(B) Revenue from Enterprise and Cloud Storage to grow to $4.36 billion by 2021, and make up 42% of Total Revenue

• The massive drop in NAND flash prices could encourage some enterprises to make the switch from traditional HDDs to flash drives, and this could hurt Seagate in the near-term till NAND prices stabilize.
• However, enterprise demand has seen strong growth of late, and as more and more people are switching to cloud storage, revenue from this segment should see steady growth.

(C) Client Compute Revenue to see almost a 12% drop to $1.82 billion, and make up about 18% of Total Revenue

• Client Compute Revenue has been dropping steadily and we expect this trend to continue in the near-term as demand for PCs and laptops fails to pick up.
• The newer Solid State Drives (SSDs) manufactured for laptops, significantly drive up the cost of a laptop, with people preferring the cheaper HDD storage-based laptops.
• Unless SSDs get more affordable, revenues from this segment could be hurt in the near-term.

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