Seagate Not Likely To Rebound Before 1Q24 As China's COVID Lockdowns & Inventory Buildup Weigh, Analyst Says - Seagate Technology Hldgs (NASDAQ:STX)

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Credit Suisse analyst Shannon Cross maintained Seagate Technology Holdings PLC (NASDAQ:STX) with a Neutral and raised the price target from $60 to $65.
Seagate will likely report 2Q23 results on Jan. 25, 2023.
The analyst expects 2Q23 revenue to decline 44% Y/Y to $1.75 billion (below the consensus of $1.82 billion), primarily reflecting weaker demand in China (COVID-19 lockdowns) and inventory digestion at U.S. cloud and OEM customers.
The analyst thinks demand trends have not worsened. However, Cross does not expect a rebound until at least 1Q24, as inventory levels remain elevated.
The analyst expects gross margin to decline 794 bps Y/Y to 22.8% on significant underutilization charges, albeit partially offset by a more excellent mix of higher capacity drives.
Cross expects the operating margin to decline by 1,503 bps Y/Y to 4.9% and expects benefit from the restructuring plan (announced during 1Q23 earnings) starting in 3Q23.
Therefore, Cross expects non-GAAP EPS of $0.04, below the consensus of $0.09.
Also Read: Seagate Technology Poised For Early Cycle Rebound, Says Morgan Stanley Analyst
Cross expects total HDD unit shipments to decline 50% Y/Y, including Mass Capacity down 40% Y/Y and Legacy 60% Y/Y.
The volume decrease is primarily attributable to customers reducing inventory levels after several quarters of aggressive buying and continued weakness in China.
The analyst expects underutilization charges to significantly impact profitability as Seagate cuts production to manage its and customer inventory levels.
For 2Q23, Cross estimates a 22.8% gross margin, improving to 23.6% by 4Q23 as inventory levels stabilize and higher capacity HAMR drives the move to commercialization.
Price Action: STX shares traded lower by 1.15% at $62.50 on the last check Tuesday.
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