Seagate Technology plc (STX): New Analyst Report from Zacks Equity Research - Zacks Equity Research Report

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We downgrade Seagate to Neutral after the company reported a dismal second quarter wherein the top and bottom lines not only declined year over year, but also missed the Zacks Consensus Estimate. The increase in investments to provide new and innovative products, sluggish macroeconomic conditions and a flattish price environment prompted the company to provide a modest guidance. Nonetheless, the company is gaining traction with its 5-mm drives and other hybrid drives which is a positive. Moreover, Seagate's cloud-based applications have received ample customer interest. However, stiff completion and margin contraction remain the headwinds for the company.


Headquartered at Dublin, Ireland, Seagate Technology plc (STX) is one of the largest manufacturers of hard disk drives (HDDs). HDDs are used as the primary medium for storing electronic information in systems ranging from desktop computers and consumer electronics to data centers delivering information over corporate networks and the Internet. The company's HDDs address desktop, notebook PC, game console, PVR/DVR, and enterprise storage markets, among other HDD sub-segments. The company operates in an industry-leading vertically-integrated model with internal control over the majority of its key component suppliers. Seagate also develops other electronic data storage products such as SSD (solid state drive) and solid state hybrid drives (SSHD).

The company offers its products under three heads Enterprise Storage, Client Compute and Client non-compute. The company enhanced its position in SSDs with the acquisition of Samsung's HDD operations and the French drive maker, LaCie.

Seagate primarily sells to original equipment manufacturers (OEMs) but supplements this with sales through distributors and retailers. Major OEM customers include Dell, EMC, Hewlett-Packard, IBM and Sun Microsystems (acquired by Oracle Corp). In fiscal 2013, revenues from OEMs made up 68.0% of total revenue distributors generated 21.0% and retail accounted for the remaining 11.0% of the revenues.

In 2013, the company generated 54.0% of revenues from the Asia Pacific, 27.0% from America and the remaining 19.0% from Europe Middle East Africa (EMEA).

The disk drive market is highly competitive and witnesses frequent pricing pressure. Companies operating in this market compete to acquire a limited number of prime customers. Alternative kinds of storage, such as flash memory, tape, optical and SSDs further pressurize the key players, Seagate, Western Digital Corporation and Toshiba Corporation.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Stocks

Referenced Stocks: STX

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