Seagate Technology (NASDAQ:STX) Misses Q1 Sales Targets

Anthony Lee /
2023/10/26 8:55 am EDT

Data storage manufacturer Seagate (NASDAQ:STX) fell short of analysts' expectations in Q1 FY2024, with revenue down 28.6% year on year to $1.45 billion. Turning to EPS, Seagate Technology made a non-GAAP loss of $0.22 per share, down from its profit of $0.48 per share in the same quarter last year.

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Seagate Technology (STX) Q1 FY2024 Highlights:

  • Revenue: $1.45 billion vs analyst estimates of $1.49 billion (2.58% miss)
  • EPS (non-GAAP): -$0.22 vs analyst estimates of -$0.25
  • Revenue Guidance for Q2 2024 is $1.55 billion at the midpoint, below analyst estimates of $1.59 billion
  • Free Cash Flow of $57 million, down 66.1% from the previous quarter
  • Inventory Days Outstanding: 73, down from 84 in the previous quarter
  • Gross Margin (GAAP): 10.2%, down from 23.7% in the same quarter last year

“Seagate’s first quarter results were in line with our revised expectations. During a longer-than-typical downcycle we have prioritized financial discipline, positive free cash flow generation and execution on our HAMR product roadmap, which will extend our industry leadership in areal density and improve the total cost of ownership for our customers,” said Dave Mosley, Seagate’s chief executive officer.

The developer of the original 5.25inch hard disk drive, Seagate (NASDAQ:STX) is a leading producer of data storage solutions, including hard drives and Solid State Drives (SSDs) used in PCs and data centers.

Memory Semiconductors

The rapid growth in data generation and the need to support increases in processing power for everything from consumer devices to data center servers are driving the demand for memory chips. From the content delivery networks and edge computing to the cloud, data storage is a key component underpinning the global technology architecture. On top of that, secular growth drivers like machine learning and the boom in media-rich digital content are further accelerating the need for storage. Like all semiconductor segments, memory makers are highly cyclical, driven by supply and demand imbalances and exposure to consumer product cycles.

Sales Growth

Seagate Technology's revenue has been declining over the last three years, dropping by 9.55% on average per year. This quarter, its revenue declined from $2.04 billion in the same quarter last year to $1.45 billion. Semiconductors are a cyclical industry, and long-term investors should be prepared for periods of high growth followed by periods of revenue contractions (which can sometimes offer opportune times to buy).

Seagate Technology Total Revenue

Seagate Technology had a difficult quarter as revenue dropped 28.6% year on year, missing analysts' estimates by 2.58%. This could mean that the current downcycle is deepening.

Seagate Technology may be headed for an upturn. Although the company is guiding for a year-on-year revenue decline of 17.9% next quarter, analysts are expecting revenue to grow 7.99% over the next 12 months.

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Product Demand & Outstanding Inventory

Days Inventory Outstanding (DIO) is an important metric for chipmakers, as it reflects a business' capital intensity and the cyclical nature of semiconductor supply and demand. In a tight supply environment, inventories tend to be stable, allowing chipmakers to exert pricing power. Steadily increasing DIO can be a warning sign that demand is weak, and if inventories continue to rise, the company may have to downsize production.

Seagate Technology Inventory Days Outstanding

This quarter, Seagate Technology's DIO came in at 73, which is 11 days above its five-year average. These numbers suggest that despite the recent decrease, the company's inventory levels are higher than what we've seen in the past.

Key Takeaways from Seagate Technology's Q1 Results

Sporting a market capitalization of $13.9 billion, more than $795 million in cash on hand, and positive free cash flow over the last 12 months, we believe that Seagate Technology is attractively positioned to invest in growth.

We liked seeing Seagate Technology's improvement in inventory levels. and we were also excited its EPS outperformed Wall Street's estimates. On the other hand, revenue missed expectations this quarter. Also, next quarter's guidance was mixed. Its revenue guidance missed Wall Street's estimates although EPS guidance exceeded expectations. The company seemed cautious about industry trends, saying that they're experiencing "a longer-than-typical downcycle." Overall, the results could have been better. The stock is flat after reporting and currently trades at $67.45 per share.

Seagate Technology may have had a tough quarter, but does that actually create an opportunity to invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.

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The author has no position in any of the stocks mentioned in this report.