Needham Slashes Seagate, Western Digital Targets On 'Softer' PC Market

In a report published Tuesday, Needham analyst Richard Kugele commented on the PC market, noting that the softness in the market is "known" and "estimates need to now reflect that dynamic."

According to Kugele's checks, June HDD (Hard Disk Drive) total addressable market ultimately came in around 115 million to 117 million units. This compares to Seagate Technology PLC (NASDAQ: STX)'s guidance expectations in April of 125 million units and Western Digital Corp (NASDAQ: WDC)'s more conservative expectations of 120 million units.

The analyst added that due to "excess channel inventory" of PCs (and not HDDs), PC and notebook builds were "particularly weak" for much of the second quarter. However, ahead of the Windows 10 launch, some builds have now occurred but not to the degree needed to meet total addressable market expectations.

Looking forward, Kugele estimated the September quarter typically sees 5-10 million incremental HDD units from game boxes and this year won't be an exception. Combined with "modest" PC notebook builds, the analyst is estimating a total addressable market of 125 million to 130 million units, although some companies may guide towards a 120 million to 125 million range.

Estimate Revisions

Kugele stated that he is making "significant" estimate revisions for Seagate to account for the PC weakness and assuming a recovery will only be "modest." Shares remain Strong Buy rated (partially due to a 4.6 percent dividend yield) with a price target lowered to $55 from a previous $68.

Kugele also initiated similar "significant" estimate revisions for Western Digital as shares were maintained with a Strong Buy rating with a price target lowered to $101 from a previous $124. The analyst noted that the estimates do not include any MOFCOM integration savings, which could translate to $1.00 to $1.50 per share annually.