We reiterate our Neutral recommendation on
Seagate Technology plc
) post its first-quarter results wherein both the top and bottom
lines declined year over year.
Why the Reiteration?
Seagate did not fare well in the first quarter due to the lack
of visibility in the hard disk drive (HDD) industry and declining
price environment. Despite the ongoing cost control measures, the
company has not been able to support its margins.
Nonetheless, we believe that with an enriched product
portfolio and higher mix of original equipment manufacturer (OEM)
business, Seagate will benefit in the long run. Moreover, the
storage solutions provider is coming up with customized products
to cater to new customers and gain traction in the storage
Moreover, Seagate has expanded its solid state drive (SSD)
portfolio and has made investments in the fast evolving PCIe
(Peripheral Component Interconnect Express) storage market. The
company has also introduced thin hybrid drives to cater to the
increasing demand of the mobile market.
Additionally, the company's focus on the enterprise segment is
also expected to boost its prospects over the long term.
Exponential growth in data storage in the cloud signals potential
acceleration in cloud deployments by the end of 2013. Therefore,
Seagate is investing heavily in high-capacity storage devices
that would support expansion of cloud infrastructure and cloud
applications. Apart from this, the focus shift toward enterprise
would reduce Seagate's dependence on the PC market.
However, Seagate faces stiff competition from
), Hitachi, Samsung and Intel in the storage market and from SSD
pureplays such as SanDisk,
) and Fusion-io. According to Trendfocus, in the third quarter of
2013, Seagate's HDD market share declined sequentially to 39.7%
from 40.4% compared to a marginal decline in Western Digital's
market share (44.7% from 44.9%) over the same period of time.
Additionally, pricing pressures, customer concentration and a
declining PC market are the other headwinds for the company.
Currently, Seagate has a Zacks Rank #3 (Hold). Investors may
) which sports a Zacks Rank #1 (Strong Buy).
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