Seagate Has Crashed, But Benchmark Is Still Cautious

• Seagate Technology PLC (NASDAQ: STX) shares have declined 43.41 percent year-to-date, hitting a low of $37.13 on October 21.
• Benchmark’s Mark Miller has maintained a Sell rating on the company, with a price target of $35.
• Despite the decline in the share price, Miller prefers to remain cautious, while mentioning that the company revised its 1QFY16 non-GAAP net income marginally above expectations and revised its 1QFY16 guidance down.

Analyst Mark Miller reported that the company’s non-GAAP net income for Q4 came in four cents above consensus, while sales were in-line. Drive shipments grew sequentially, although they were year-on-year, while TAM is estimated to have grown sequentially in the September quarter.

For 1QFY16, Seagate Technology had revised its guidance significantly down during mid-October, guiding to lower sales and non-GAAP gross margins than earlier. Seagate Technology attributed the revision to “lower than planned nearline drive sales along with mix.”

According to the Benchmark report, during Q4, “Seagate announced a new hard disk drive with 2 TB of capacity in a slim 7mm package. The firm also unveiled a new portfolio of 8 TB nearline drives. A new SAS solid state drive was also announced.”

With the Dot Hill acquisition having been completed and the MOFCOM restrictions having eased, “synergistic savings are expected from the easement of the restrictions,” although the company was “unwillingly to quantify the amount.”

Seagate Technology expects to return to normal margin levels by mid-CY16, although Bird prefers to remain cautious, given that there are indications of market share loss for the enterprise segment over the last couple of quarters, as well as uncertainty regarding the integration of recent acquisitions.