Seagate Technology (NASDAQ:STX) Misses Q1 Sales Targets, Stock Is Down In Pre-market

Kayode Omotosho /
2022/10/26 8:10 am EDT

Data storage manufacturer Seagate (NASDAQ:STX) fell short of analyst expectations in Q1 FY2023 quarter, with revenue down 34.6% year on year to $2.03 billion. Guidance for the next quarter also missed analyst expectations with revenues guided to $1.85 billion at the midpoint, or 13.2% below analyst estimates. Seagate Technology made a GAAP profit of $29 million, down on its profit of $526 million, in the same quarter last year.

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Seagate Technology (STX) Q1 FY2023 Highlights:

  • Revenue: $2.03 billion vs analyst estimates of $2.1 billion (3.36% miss)
  • EPS (non-GAAP): $0.48 vs analyst expectations of $0.71 (32.7% miss)
  • Revenue guidance for Q2 2023 is $1.85 billion at the midpoint, below analyst estimates of $2.13 billion
  • Free cash flow of $112 million, roughly flat from previous quarter
  • Inventory Days Outstanding: 94, up from 76 previous quarter
  • Gross Margin (GAAP): 23.6%, down from 30.6% same quarter last year

“Global economic uncertainties and broad-based customer inventory corrections worsened in the latter stages of the September quarter, and these dynamics are reflected in both near-term industry demand and Seagate's financial performance,” 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.

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 growth over the last three years has been unimpressive, averaging 3.23% annually. Last year the quarterly revenue declined from $3.11 billion to $2.03 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

This was a difficult quarter for Seagate Technology, with revenue declining 34.7%, missing analyst estimates by 3.37%.

The company is guiding to a 40.7% year on year decline for the next quarter, while analysts are estimating a NTM revenue decline of 7.87%.

In volatile times like these we look for robust businesses with strong pricing power. Unknown to most investors, this company is one of the highest-quality software companies in the world, and their software products have been the default standard in critical industries for decades. The result is an impressive business that is up an incredible 18,152% since the IPO. You can find it on our platform for free.

Product Demand & Outstanding Inventory

Days Inventory Outstanding (DIO) are an important metric for chipmakers, as it reflects the capital intensity of the business 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 inventory days came in at 94, 37 days above the five year average, suggesting that that inventory has grown to higher levels than what we used to see in the past.

Key Takeaways from Seagate Technology's Q1 Results

With a market capitalization of $12 billion, more than $761 million in cash and with free cash flow over the last twelve months being positive, the company is in a very strong position to invest in growth.

We struggled to find many strong positives in these results. On the other hand, it was less good to see that the revenue is in decline and the guidance for the next quarter missed analysts' expectations. Overall, this quarter's results could have been better. The company is down 6.84% on the results and currently trades at $54 per share.

Seagate Technology may have had a tough quarter, but does that actually create an opportunity to invest right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.

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