Seagate Technology (NASDAQ:STX) Misses Q4 Analysts' Revenue Estimates

Jabin Bastian /
2023/07/26 4:21 pm EDT

Data storage manufacturer Seagate (NASDAQ:STX) missed analysts' expectations in Q4 FY2023, with revenue down 39% year on year to $1.6 billion. Seagate Technology made a GAAP loss of $92 million, down from its profit of $276 million in the same quarter last year.

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Seagate Technology (STX) Q4 FY2023 Highlights:

  • Revenue: $1.6 billion vs analyst estimates of $1.69 billion (5.01% miss)
  • EPS (non-GAAP): -$0.18 vs analyst estimates of -$0.25
  • Revenue guidance for Q1 2024 is $1.55 billion at the midpoint, below analyst estimates of $1.74 billion
  • Free cash flow of $168 million, similar to the previous quarter
  • Inventory Days Outstanding: 80, up from 71 in the previous quarter
  • Gross Margin (GAAP): 19%, down from 28.9% in the same quarter last year

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 by 8.03% on average per year. This quarter, its revenue declined from $2.63 billion in the same quarter last year to $1.6 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 39% year on year, missing analysts' estimates by 5.01%. 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 23.8% next quarter, analysts are expecting revenue to grow 4.7% over the next 12 months.

In volatile times like these, we look for robust businesses with strong pricing power. Overlooked by most investors, this company is one of the highest-quality software companies in the world, and its software products have been the gold standard in critical industries for decades. The result is an impressive business that's up an incredible 18,000%+ since its IPO. You can find it on our platform for free.

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 80, which is 19 days above its five-year average, suggesting that the company's inventory has grown to higher levels than we've seen in the past.

Key Takeaways from Seagate Technology's Q4 Results

With a market capitalization of $12.1 billion, a $786 million cash balance, and positive free cash flow over the last 12 months, we're confident that Seagate Technology has the resources needed to pursue a high-growth business strategy.

What stood out as a positive in these results was Seagate's EPS beat. On the other hand, the company missed Wall Street's revenue expectations and its sales guidance was also underwhelming. Gross margin still indicates unfavorable market conditions, and depressed free cash flow is another sign of that. Overall, this was a mediocre quarter for Seagate Technology. The stock is flat after reporting and currently trades at $58.5 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, and what's happened in the latest quarter. We cover this and more in our full company report, and it's free.

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