Analysts At Argus Remain Sidelined On Seagate

Seagate Technology PLC STX reported an annual revenue decline in F4Q16. The company needs to reduce its productive capacity and realigns its operating model, Argus’s Jim Kelleher said in a report. He maintained a Hold rating on the company.

Mixed Results

Seagate reported a 9 percent annual revenue decline, its first single-digit decline since 3Q15. Non-GAAP EPS came in at $0.69, down 11 percent y/y, but was more than three times that reported in the prior quarter.

Cautious Outlook

The company announced a cautious outlook for its markets. Management suggested that Seagate’s success in selling HDDs to cloud service providers, such as Amazon.com, Inc. AMZN and Microsoft Corporation MSFT, could be coming at the cost of sales to traditional providers of on-premises IT equipment.

“More broadly, cloud customers are not providing Seagate with the kind of clear seasonal visibility that the on-premises IT gear companies have historically provided. Due to the changing composition of its customer base, Seagate is experiencing shifts in traditional seasonal demand patterns,” Kelleher wrote.

Seagate has projected an 8 percent y/y decline in revenue for F1Q17. “We expect the shares to remain volatile as cloud and legacy customers seek balance between low-cost magnetic (spinning-disk) memory and electronic (NAND) memory…While Seagate reduces productive capacity and realigns its operating model, we believe that a HOLD rating is prudent,” the analyst commented.

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