Seagate Technology (NASDAQ:STX) Misses Q3 Sales Targets

Kayode Omotosho /
2023/04/20 8:16 am EDT
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Data storage manufacturer Seagate (NASDAQ:STX) missed analyst expectations in Q3 FY2023 quarter, with revenue down 33.6% year on year to $1.86 billion. Seagate Technology made a GAAP loss of $433 million, down on its profit of $346 million, in the same quarter last year.

Is now the time to buy Seagate Technology? Access our full analysis of the earnings results here, it's free.

Seagate Technology (STX) Q3 FY2023 Highlights:

  • Revenue: $1.86 billion vs analyst estimates of $1.97 billion (5.78% miss)
  • EPS (non-GAAP): -$0.28 vs analyst estimates of $0.21 (-$0.49 miss)
  • Revenue guidance for Q4 2023 is $1.7 billion at the midpoint, below analyst estimates of $2.06 billion
  • Free cash flow of $174 million, roughly flat from previous quarter
  • Inventory Days Outstanding: 71, up from 66 previous quarter
  • Gross Margin (GAAP): 17.2%, down from 28.8% same quarter last year

“We are seeing a more elongated customer inventory correction that led to weaker than expected nearline demand among a few large customers late in the quarter. Consequently, our March quarter revenue came in at the low-end of our guidance range, which along with underutilization charges and other factors had a severe impact on our reported margins and profitability,” 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 has been declining over the last three years, dropping annually on average by 4.26%. Last year the quarterly revenue declined from $2.8 billion to $1.86 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 33.6%, missing analyst estimates by 5.78%.

Seagate Technology' appears to be headed for an upturn. While the company is guiding to revenue declines of 35.3% year on year next quarter, analyst consensus sees 10.7% growth over the next twelve months.

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 71, 12 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 Q3 Results

Sporting a market capitalization of $13 billion, more than $766 million in cash and with positive free cash flow over the last twelve months, we're confident that Seagate Technology has the resources it needs to pursue a high growth business strategy.

We struggled to find many strong positives in these results. Revenue growth was quite weak. Both revenue and EPS guidance for the next quarter missed analysts' expectations. Overall, it seems to us that this was a negative quarter for Seagate Technology. The company is down 4.59% on the results and currently trades at $60.01 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.