Seagate And Western Digital Battled For Market Share In Q2

Jefferies' James Kisner commented in a research report that Seagate's report was "solid," but its gross margin was a "blow-out" at 31.8 percent, which exceeded the Street's expectations of 29.9 percent.

Market Share Battle

Seagate attributed its gross margin strength to the ongoing shift toward higher capacity products across the portfolio including surveillance, home NAS, high-capacity PC and near-line drives.

Kisner added that Seagate's fiscal third-quarter and full-year 2017 guidance was "very nice," as revenue of $2.7 billion for the upcoming quarter came in ahead of the Street's estimate of $2.6 billion, while gross margin is expected to come in the 30 percent range versus estimates of 29.1 percent.

For the full year, Seagate expects to earn $4.50 per share, which is an "achievable" objective and head of the Street's estimates of $3.75 per share and the analyst's own estimates of $4.40 per share.

Kisner also noted that in the business critical segment, Seagate likely lost around 9 points of unit share, most of which may have flown to Western Digital Corp WDC.

Similarly, Seagate likely lost four points of market share in the mission critical business to Toshiba Corp (USA) TOSYY, but it is also possible there is upside for Western Digital as well.

Bottom line, Kisner maintains a Buy rating on Seagate with price target raised to $50 from a previous $44 based on his belief that the industry the company operates in will continue benefiting from data growth in the cloud and improving competitive dynamics.