Data storage manufacturer Seagate (NASDAQ:STX) missed analyst expectations in Q4 FY2022 quarter, with revenue down 12.7% year on year to $2.62 billion. Guidance for the next quarter also missed analyst expectations with revenues guided to $2.5 billion at the midpoint, or 16.5% below analyst estimates. Seagate Technology made a GAAP profit of $276 million, down on its profit of $482 million, in the same quarter last year.
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Seagate Technology (STX) Q4 FY2022 Highlights:
- Revenue: $2.62 billion vs analyst estimates of $2.78 billion (5.72% miss)
- EPS (non-GAAP): $1.59 vs analyst expectations of $1.89 (15.7% miss)
- Revenue guidance for Q1 2023 is $2.5 billion at the midpoint, below analyst estimates of $2.99 billion
- Free cash flow of $108 million, down 70.2% from previous quarter
- Inventory Days Outstanding: 76, up from 67 previous quarter
- Gross Margin (GAAP): 28.8%, down from 29.3% same quarter last year
“Our June quarter results reflect stable mass capacity storage demand, offset by the impacts of Covid restrictive measures in Asia and weakening global economic conditions on our other end markets. These impacts were most pronounced in our consumer facing Legacy markets,” 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.
Seagate Technology's revenue growth over the last three years has been unimpressive, averaging 4.96% annually. Last year the quarterly revenue declined from $3.01 billion to $2.62 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).
It was a difficult quarter for Seagate Technology, with revenue declining by 12.8% year on year, missing analyst estimates by 5.73%. Seagate Technology's growth turned to declines this quarter, signal that the current downcycle is deepening.
Revenue growth went from positive to negative this quarter, and is expected to stay negative next quarter with an estimated decline of 19.8% YoY while analysts expect revenues to turn positive over the next twelve months with growth of 4.35% over the next twelve months.
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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.
This quarter, Seagate Technology’s inventory days came in at 76, 21 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 Q4 Results
With a market capitalization of $17.6 billion, more than $615 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 growth was quite weak and the revenue guidance for the next quarter missed analysts' expectations. Overall, this quarter's results were not the best we've seen from Seagate Technology. The company is flat on the results and currently trades at $83.61 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.