Seagate Eliminates Dividend, Issues Forecast

Seagate Technology announces selected preliminary fiscal Q3 2009 financial results

April 14, 2009

2 Min Read
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SCOTTS VALLEY, Calif. -- Seagate Technology (NASDAQ: STX) today announced selected preliminary financial results for its third fiscal quarter which ended on April 3, 2009 and an initial business outlook for its fourth fiscal quarter ending July 3, 2009.

Preliminary Fiscal Third Quarter 2009 Results

Seagate expects to report unit shipments of approximately 39 million and revenue of approximately $2.1 billion, exceeding the companys original outlook of $1.6 – 2.0 billion. The company believes the total available market (TAM) for hard disk drives was in the range of 110-112 million units for the March quarter. Unit demand for Seagate’s 2.5-inch and 3.5-inch ATA products was better than planned and the company gained significant share in each of these markets. The company’s leadership position in the enterprise market remained substantially unchanged from the prior quarter; however, the TAM for enterprise class products decreased by an estimated 20%, sequentially. In addition, the company shipped a higher mix of lower capacity desktop and notebook products than planned. Cash, cash equivalents and short-term investments increased by $200 million to approximately $1.5 billion.

Gross margin as a percent of revenue (“gross margins”) is expected to be approximately 7 – 7.5%, which is better than the company anticipated due to higher volumes and effective spending controls. Compared to the prior quarter, gross margins decreased by approximately 700 basis points due to like-for-like product price declines, an estimated 20% reduction in the TAM for enterprise class products, and lower factory utilization and fixed cost absorption as the company continues to aggressively manage inventory and align production with demand.

Product development and marketing/administrative costs are expected to be approximately $380 million, including approximately $10 million of accelerated depreciation, which is favorable compared to the original outlook of $395 million.“I’m encouraged by our progress during the quarter in identifying and addressing a number of key strategic issues that are critical to the success of our business model,” said Steve Luczo, Seagate chairman and chief executive officer. “Specifically, we are realigning our business processes and optimizing our product portfolio to maximize profitability. These actions allow us to more effectively fund our technology development, drive product leadership and create value for our customers by delivering the industry’s best products. We expect to see the effects of these actions in our product transitions, resulting in an ongoing improved margin profile. We’re encouraged with the ramp of our new 250GB and 500GB 2.5-inch products and 500GB and 1TB 3.5-inch products as they transitioned to volume this quarter. Additionally, we are addressing the near- to mid-term liquidity requirements through the recently announced amendment to our credit agreement and the announcement today of our anticipated financing.”

Seagate Technology Inc.

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