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Seagate Stock: Company’s Performs ‘Weaker Than Expected’ [NEWS]

Posted On September 15, 2017 2:27 pm
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The Seagate Technology building, located in Cupertino, California

This year hasn’t exactly been a banner year for Seagate Technology. Seagate stock took a hit after the company posted weaker-than-expected fiscal fourth quarter 2017 results, mainly due to the declining HDD demand. Seagate revenue has been on a constant decline since 2012. In the fiscal fourth quarter, revenue fell 9% year over year to $2.41 billion.

Hard drives account for a major chunk of Seagate’s business. However, PC sales around the world are stagnating. According to Gartner, PC shipments declined by 4.3% in the second quarter of 2017 on year over year basis. This was the 11th straight quarter of declining shipments. This trend has taken a toll on Seagate’s finances. Also, users are continuing to shift to SSD for storage, as price difference between SSDs and hard drives is continuously dwindling.  Gartner estimates that by the end of 2020, over 83% of mobile PCs and 62% of desktop computers will have SSDs.

Seagate’s earnings have shown no signs of growth. A slight improvement in EPS in 2017 was mainly due to the restructuring efforts of the company. Seagate plans to reduce its HDD production capacity by a whopping 40%. The company also announced a plan to lay off 600 employees. These efforts will result in $90 million savings per year.

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Seagate Technology’s plan is to focus more on HDD sales for the Enterprise sector. The demand for HDDs remain strong in Enterprise due to their cheapness. But analysts think that Enterprise revenue isn’t improving. The company is also selling storage devices with Micron as a result of a partnership, but the quantity of these products isn’t huge, and sales remain cyclical in nature.

Some analysts think that the latest rise in NAND flash prices will result in a further hike in the price of SSDs. Therefore, the HDD market is here to stay. But Seagate will need to start offering hybrid storage devices (SSD+HDD) to stay relevant in the industry in the coming years.

Earlier this month, Jefferies analyst James Kisner downgraded the stock to “Hold” from “Buy. The analyst has a $90 price target. The analyst said in his note that Seagate is struggling with 10 TB helium drives, from which investors had high hopes. FBN Securities analyst Shebly Seyrafi also downgraded Seagate to “Sector Perform” to “Outperform” and slashed the price target to $32 from $40.

Seagate stock has lost about 14% in value since the start of this year.

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