Seagate Technology Holdings plc STX reported first-quarter fiscal 2025 non-GAAP earnings of $1.58 per share, beating the Zacks Consensus Estimate by 6.8% and coming toward the high end of management’s guidance of $1.40 per share (+/- 20 cents). The company reported a non-GAAP loss of 22 cents per share in the year-ago quarter. This improvement in the bottom line was driven by a favorable mix shift to mass-capacity products and a better pricing environment.
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Non-GAAP revenues of $2.168 billion beat the Zacks Consensus Estimate by 2.4%. The figure increased 49% on a year-over-year basis and 15% sequentially. Management projected revenues to be $2.1 billion (+/- $150 million) for the fiscal first quarter. Revenue performance gained from continued momentum in cloud demand along with improving enterprise and OEM markets.
Seagate Technology Holdings PLC Price, Consensus and EPS Surprise
Seagate Technology Holdings PLC price-consensus-eps-surprise-chart | Seagate Technology Holdings PLC Quote
Higher mass capacity revenues were driven by stronger nearline cloud demand and increasing nearline enterprise sales. Mass capacity revenues surged 70% year over year to $1.733 billion. Its exabyte shipments now represent more than 93% of total HDD exabyte shipments.
Nearline cloud demand was mainly driven by cloud service providers (“CSPs”) across the United States. STX added that it has been witnessing positive demand trends globally. Management anticipates continued improvement in the fiscal second quarter owing to shipments for the latest high-capacity products expanded across global CSP and enterprise customers.
Management also announced a nearly 3% hike in its quarterly dividend to 72 cents. The dividend will be paid out on Jan. 6, 2025, to its shareholders of record as of the close of business on Dec. 15, 2024.
Following the announcement, shares are down 4.6% in the premarket trading session on Oct 23. In the past year, STX has gained 65.4% compared with the sub-industry’s growth of 55.3%.
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STX's Exabyte Shipments in Detail
In the reported quarter, Seagate shipped 137.5 exabytes of HDD storage, up 54% year over year and 20% sequentially. Our estimate was pegged at 124.9 exabytes of HDD storage. Average mass capacity increased 43% year over year and 15% sequentially to 10.6 TB.
The company shipped 128 exabytes for the mass-capacity storage market (including nearline, video and image applications, and network-attached storage). This recorded a year-over-year increase of 62% in exabyte shipments and 23% sequentially. Our estimate was pegged at 114.8 exabytes of mass-capacity storage. Average mass capacity per drive increased sequentially to 14.3 TB from 12.6 TB.
In the nearline market, it shipped 109.1 exabytes of HDD, up 95% year over year and 29% sequentially.
Seagate shipped 9.6 exabytes for the legacy market (which includes mission-critical notebooks, desktops, gaming consoles, digital video recorders or DVR and external consumer devices), down 8% year over year and 7% sequentially. Average capacity increased 1% year over year to 2.4 TB.
STX's Revenues by Product Group
Total HDD revenues (92.4% of total revenues) rose 55% year over year to $2.004 billion in the reported quarter. On a sequential basis, revenues were up 16%.
Systems, SSD & Other segment’s revenues (7.6%), including enterprise data solutions, cloud systems and solid-state drives, were $164 million, up 3% on a year-over-year basis and sequentially.
Our estimates for revenues from HDD and non-HDD segments were $1.932 billion and $169.1 million, respectively.
Seagate's Margin Details
Non-GAAP gross margin increased to 33.3% from 19.8% in the prior year quarter. This expansion was driven by price adjustment, cost discipline and a favorable product mix shift to mass-capacity products.
Non-GAAP operating expenses were up 13% on a year-over-year basis to $281 million, primarily due to higher variable compensation.
Non-GAAP income from operations totaled $442 million, up from $40 million a year ago. Non-GAAP operating margin increased to 20.4% from 2.8% in the year-earlier quarter.
STX's Balance Sheet and Cash Flow
As of Sept. 27, 2024, cash and cash equivalents were $1.239 billion compared with 1.358 billion as of June 28.
As of Sept. 27, 2024, long-term debt (including the current portion) was $5.676 billion compared with $5.674 billion as of June 28.
Cash flow from operations was $95 million compared with $434 million in the previous quarter. Free cash flow amounted to $27 million compared with $380 million in the prior quarter. The free cash flow numbers reflect efforts to normalize working capital to support the supply chain and meet the increasing mass capacity demand. STX noted that working capital will take a couple of more quarters to fully adjust, which will affect free cash flow generation to some extent.
STX paid $147 million as dividends in the fiscal first quarter. It exited the quarter with 211 million shares outstanding.
Seagate's Outlook
Management anticipates second-quarter fiscal 2025 revenues to be $2.3 billion (+/- $150 million). STX expects continued improvements in mass capacity, owing to strengthening nearline demand from global cloud customers and improvement in the enterprise & OEM markets. The increase in mass capacity revenues is likely to offset lower revenues from legacy and other markets. For VIA, management anticipates sales in the fiscal second quarter to be similar to the first quarter.
Margin performance is expected to benefit from a higher mix of mass capacity revenues and ongoing pricing actions.
Non-GAAP earnings are expected to be $1.85 per share (+/- 20 cents).
The non-GAAP operating expenses are expected to be $285 million. At the midpoint of the revenue guidance, management expects the non-GAAP operating margin to grow in the low-20s percentage range of revenues.
STX expects fiscal 2025 capex to be at or below the low end of its long-term target range of 4-6% of revenues.
STX's Zacks Rank
Currently, Seagate sports a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.
Recent Performance of Other Companies in Tech Space
BlackBerry BB reported breakeven second-quarter fiscal 2025 earnings, better than the company’s estimate of a loss per share of 2-4 cents. In the year-ago quarter, it reported a non-GAAP loss per share of 4 cents. The Zacks Consensus Estimate was pegged at a loss of 3 cents per share. Quarterly revenues of $145 million increased 9.9% year over year driven by strong growth across the Internet of Things (IoT) and Cybersecurity businesses. Shares of BB have lost 27.2% in the past year.
Badger Meter, Inc. BMI reported an EPS of $1.08 for the third quarter of 2024, beating the Zacks Consensus Estimate by 5.9%. Quarterly net sales were $208.4 million, up 12% from $186.2 million in the year-ago quarter. The uptick resulted from continued strong yet normalizing demand for its tailorable water management solutions. Shares of BMI have gained 45.4% in the past year.
Iridium Communications IRDM reported earnings per share (EPS) of 21 cents for the third quarter of 2024, beating the Zacks Consensus Estimate by 5%. The company incurred a loss of 1 cent per share in the prior-year quarter. Quarterly revenues were $212.8 million, up 8% from the year-ago level, driven by strength across all three segments. The Zacks Consensus Estimate was pegged at $205.7 million. Shares of IRDM have lost 23.5% in the past year.
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