Seagate posted lower-than-expected second-quarter fiscal 2015
results wherein the top and bottom lines both fell short of the
Zacks Consensus Estimates. The quarter also witnessed margin
contractions. Nonetheless, the company is gaining traction with its
new products focused on surveillance and the analytics market as
well as other hybrid drives. Also, Seagate is focusing on the
enterprise side, which is a key growth area in the information
technology sector. Furthermore, synergies from acquisitions and
product innovations are the other growth catalysts. However,
increased investment in new and innovative products, sluggish
macroeconomic conditions and a flattish price environment, and
competition from Western Digital and SanDisk remain the headwinds.
Thus, we reiterate our Neutral recommendation on Seagate.
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 2014,
revenues from OEMs made up 68% of total revenue distributors
generated 20% and retail accounted for the remaining 12% of the
In fiscal 2014, the company generated 54% of revenues from the
Asia Pacific, 27% from America and the remaining 19% 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.
Seagate Technology Public Limited Company (STX):
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