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Seagate outlook raises concerns about its growth in cloud
July 24, 2013 / 6:03 PM / 4 years ago

Seagate outlook raises concerns about its growth in cloud

(Reuters) - A muted revenue outlook from hard-disk drive maker Seagate Technology Plc (STX.O) sparked concerns that its cloud storage business was not growing fast enough to offset falling demand from PC makers, sending its shares down as much as 10 percent.

Seagate and rival Western Digital Corp (WDC.O), which together dominate the hard drive market, are working to reduce their dependence on personal computer hard drives as consumers increasingly shift to smartphones and tablets.

Both the companies have been focusing on growing sales to cloud storage firms. Seagate’s fast-growing high-margin cloud business accounts for about 8-9 percent of total revenue but has been widely expected to offset slowing growth in its traditional business.

While unit shipments fell in the fourth quarter on lower demand from the PC market, demand for Seagate’s cloud storage products is expected to grow, Chief Financial Officer Pat O‘Malley told Reuters.

“Cloud business is becoming a greater percentage of our business and revenue, units and profit,” O‘Malley said.

Seagate does not break out sales from the cloud business.

The company’s sales forecast of $3.5 billion to $3.6 billion for the first quarter was largely in line with the average Wall Street estimate of $3.56 billion but some analysts said investors were expecting a higher number.

“Guidance is kind of in-lineish. People were expecting the number to go higher because that’s what has happened last couple of quarters,” Pacific Crest Securities analyst Monika Garg said.

Seagate shares ran up more than 70 percent in the last one year as the company’s results topped estimates for the last three quarters.

Piper Jaffray analyst Andrew Nowinski said the weak outlook indicated marketshare losses to Western Digital.

“Investors are asking if the share losses will continue into the September quarter ... I believe Western Digital’s share gain will continue into the September quarter,” Nowinski said.

Seagate also reported fourth-quarter profit that beat estimates by a cent. Net income fell to $348 million, or 94 cents per share, from $1.01 billion, or $2.37 per share, a year earlier.

Excluding items, the company earned $1.20 per share.

Revenue fell to $3.43 billion from $4.5 billion a year earlier.

The company shipped 53.9 million units in the quarter, down from 65.9 million a year earlier.

Analysts on average expected earnings of $1.19 per share on revenue of $3.42 billion.

Seagate shares fell as much as 10 percent to $40.80 before easing a little to trade down 4 percent at $43.60 in afternoon trading on the Nasdaq.

Reporting by Sruthi Ramakrishnan in Bangalore; Editing by Joyjeet Das and Saumyadeb Chakrabarty

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