Seagate Technology ( STX ), one of the largest providers of data storage devices and solutions, has delivered strong results in recent years, with earnings beating market expectations more often than not. That said, despite a positive last quarter, the company's stock price dipped by about 6% post the earnings release as investors were likely concerned about the company's vulnerability in the solid-state drive ( SSD ) market. This is reasonable given that Seagate is not a major player in the market dominated by the likes of Samsung, Intel, and Western Digital and relies heavily on spinning disks. The company is scheduled to announce fiscal fourth-quarter earnings on July 30, and we expect it to report another robust quarter. However, the company's reluctance to capitalize on the shift in the storage market will likely hurt the stock price. We expect Seagate to report earnings of about $1.37 per share on revenues of $2.81 billion for the quarter, based on our interactive model for Seagate . Moreover, we maintain our $54 price estimate for Seagate, which is below the current market price. Below we take a look at some of the key trends that we will be watching when the company reports earnings.
Lack Of SSD Solutions Could Hurt Seagate
Seagate generates about 92% of its revenues from the sales of hard disk drives. However, demand for SSD is growing as enterprises are looking to upgrade their storage systems to fulfill the requirements of modern-day business applications that require higher speed, responsiveness, and low rate of failures. This is where HDD lags behind as it consumes more energy and has moving mechanical parts that are more prone to failures. Moreover, the company's sales in 2017 were boosted by a supply-demand imbalance for NAND which increased SSD prices, resulting in reduced adoption. However, the supply has stabilized now. This will likely result in lower prices for NAND based drives, thereby negatively impacting the sales of Seagate's spinning drives, especially in mainstream compute solutions. Moreover, price competition for mainstream SSDs will become more intense this year. Seagate competes against major players in this area, and this will likely put pressure on the sales of SSDs.
Enterprise Hard Drives Sales To Continue On Upward Trend
Seagate's enterprise drive business should continue to be the principal contributor to the company's success. The explosive growth in IoT (Internet of Things) has generated demand for storage, and Seagate is right in the thick of this projected growth. The company's enterprise solutions fit the requirements of cloud computing companies as they generally favor low-cost high-capacity drives. Last quarter, Seagate shipped 43.8 exabytes in this business and we expect this quarter to build on that number. Moreover, the company's 14TB helium based enterprise drive, along with 10TB nearline drives should provide a boost to the top line.
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