Q4 guidance down
Hard disk drive market leader Seagate reported a solid third quarter in its fiscal 2008 but sees bumps in the road ahead.
The company stated it made about 43 million drive units in its Q3. Net revenue grew 10 percent year-on-year to $3.1 billion, and net income increased 62 percent year-on-year to $344 million.
CEO Bill Watkins said: “We are pleased with Seagate’s solid operational and financial performance in the quarter driven by continued strong global demand for storage products. Further, we delivered strong year-over-year revenue and earnings growth in the third quarter. We continue to believe that there is significant opportunity in the notebook and retail markets – two areas where the company recently has not performed to expectation. We expect to see improved performance in these areas in the June quarter and through the calendar year.”
Seagate ceded areal density leadership in notebook drives in a misguided concentration of focus on to 3.5-inch drives in 2007. It will take a while for Seagate to regain areal density parity with Western Digital and others in that sector, but it will. It has areal density parity generally but has to build it into its notebook disk drive products which takes time.
The retail sector under-performance is odd as Seagate bought Maxtor in December 2005 partly for its retail presence. In the earnings call transcript Watkins said: “During the back half of March there was a steep decline in the demand for personal storage products, followed by what we believe were strong incentives from our competitors. These developments within the context of our ongoing commitment to maintaining financial discipline resulted in revenues below our expectations.”
Brian Dexheimer, in charge of Seagate’s consumer division, said: ” We believe market concerns with macro-economic pressures contributed to the change in hard drive demand as it was concentrated mostly in the US channel in retail markets.”
However, what is worrying is that Seagate has produced guidance for the fourth fiscal 2008 quarter that is down on Q3. It is sugesting that its Q4 net revenue will be $2.85 – $3.0 billion and net income per share of $0.37 – $0.41. The net income per share in Q3 ’08 was $0.65.
If we calculate the average revenue per drive in Q3 and back calculate the drive numbers for Q4 from the midway point of the expected net revenue we come up with a Q4 ’08 drive total of 40.8 million.
So, even if Seagate does claw back ground in the retail and notebook sector it is forecasting lower drive shipments overall for the quarter.
In its Q4 ’07 results Seagate reported drive shipments of 39.2 million, revenue of $2.74 billion, and diluted net income per share of $0.96. If it makes the mid-point of its Q4 ’08 expectations revenue will still grow year-on-year but net income will be significantly reduced. The company gives no reasons for its Q4 ’08 expexctation sights being set so low but the obvious answer is the current economic downturn. At least it’s not much of a downturn.