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Seagate Technology's Continued Struggles With 10TB Helium Drives Results In A Downgrade

Seagate Technology's Continued Struggles With 10TB Helium Drives Results In A Downgrade
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Seagate Technology PLC (NASDAQ: STX) continues to struggle with ramping its 10TB helium drives, reason enough to prompt analysts at Jefferies to downgrade the stock. The firm's James Kisner downgrades Seagate's stock rating from Buy to Hold with an unchanged $90 price target.

Seagate has already publicly acknowledged disappointing progress with the ramp of its helium drives, Kisner commented in his downgrade note. But while the company shipped only 300,000 10TB units in the June quarter the company guided its third quarter shipments to be one million units — a figure the analyst has a hard time believing (see Kisner's track record here).

Kisner's checks suggest that Seagate "continues to struggle with product quality issues" around Helium. Also, pricing in Nearline drives has also fallen more quickly than normal as of late and that for each 1-percent incremental price pressure in nearline, the company's third-quarter earnings per share will be impacted by 4 cents.

In addition, the company's woes in the Helium drives segment is particularly concerning since over 40 percent of the company's gross profit comes from the segment.

Bottom line, the analyst's prior bullish stance was based on Seagate's success in helium drives among hyperscale customers, which was viewed as the "most interesting" growth opportunity, the analyst continued. But this thinking no longer applies and is replaced with multiple concerns.

Related Links:

Seagate's Path Will Get Much Tougher From Here; Barclays Downgrades To Underweight

Western Digital And Seagate: Same Business, Different Directions
Image Credit: By LPS.1 (Own work) [CC0], via Wikimedia Commons

Latest Ratings for STX

May 2018Morgan StanleyMaintainsOverweightOverweight
May 2018Craig-HallumDowngradesBuyHold
Apr 2018Morgan StanleyUpgradesEqual-WeightOverweight

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