Seagate FY 3Q16 Earnings Call Notes

Seagate Technology’s (STX) CEO Steve Luczo on Q3 2016 Results

Generally weak macro environment and shifts of technologies by end users

” We believe Seagate’s March quarter results are reflective of a generally weak macroeconomic environment as well as accelerating usage shifts of technologies and architectures by end users. Our HDD shipments for the March quarter were $39.2 million units and 55.6 Exabyte’s reflecting a seasonally lower than expected overall.”

Particular weakness in client desktop

“We experienced particular weakness in the client desktop as well as the enterprise legacy markets, adding strength in the enterprise cloud markets. Overall average capacity per drive was 1.4 Terabytes up 30% year-over-year and within this near line cloud average capacity per cloud was 3.9 Terabytes up 25% year-over-year.”

Adoption of mobile and clound mean there will be a shift in revenue split for HDD storage

“The continued advancement and adaptation of mobile and cloud based computing architectures is reflected in the revenue shifts we are seeing in our portfolio. Our long term business thesis continues to be that there will be a significant transition in the HDD from a historical split. Revenue split of 60% client and 40% enterprise revenue to 40% client and 60% enterprise revenue over the next several years.”

Client market remaining share dominated by high capacity products

“While overall PC HDD client revenues is declining the remaining share is dominated by high capacity products which will continue to increase with the new product offerings that we have started to introduce in the June quarter. we are starting to see our client business shift to consumer, surveillance, gaming and DVR markets which are all high capacity user environments which I believe over the next several quarters this growth will result in these combined markets being greater than the traditional PC compute market today.”

Dave Mosley

End of life for 500 GB and below products

” In the client space as Steve sad the PC market continued to decline in Q3 and we began end of life activity on some of the older 500 Gigabyte and below products that have very low margins”

Seagate FY 2Q16 Earnings Call Notes

Seagate Technology’s (STX) CEO Steve Luczo on Q2 2016 Results

Shipped 60 exabytes of storage

“Our HDD exabyte shipments for the December quarter were 60.6 exabytes, up 10% sequentially. Within this, enterprise exabyte shipments were up 21% sequentially, reflecting strong demand for our high-capacity enterprise products. Average capacity per enterprise drive was a new record of 2.2 terabytes, up 15% year-over-year.”

Surveillance and video applications growing rapidly

“Surveillance and video applications are growing rapidly and they are seeing strong demand for our products specifically designed for these workloads. Our retail, gaming and client offerings are continuing to move to higher capacity points and are benefiting from the recent launch of products with industry leading areal density.”

Global economic concerns should persist at least through June

“In the last several quarters, we have discussed our concerns over global economic conditions, particularly in Europe and China, which have proven accurate and we believe will persist at least through June this calendar year.”

Expect overall storage market demand will be seasonally down

“Taking into account macroeconomic factors, we believe overall storage market demand will be seasonally down in the March quarter which has ranged between 5% and 10% over the last five years. We are planning for revenues to be approximately $2.7 billion, which reflects the high end of the seasonal demand trend and operating expenses to be sequentially flat.”

Toshiba probably wont be in this business in one to three years

“if you had asked me where was my gauging of would Toshiba be in the business in the next one to three years today versus where was it six months or a year ago, I am much more towards the end that they are not going to be in this business in the next one to three years, just because I don’t how I see how they can be competitively, given where areal density is going and given where manufacturing is and given some of their bigger corporate issues, I just can’t imagine that that’s where they want to spend their R&D expense or frankly their cash flow.’

Seagate FY 3Q15 Earnings Call Notes

Macro and PC weakness increased in FY3Q

“As we indicated in our business outlook in January, challenges from macroeconomic pressures in Europe and PC demand were factors we needed to manage through the quarter. The magnitude of these factors actually increased in third quarter, resulting in an impact to our top line revenue beyond our initial expectations, particularly in our EMEA business which was down approximately $100 million sequentially.”

Over 1TB per drive

“Overall storage shipments for the March quarter were 55 exabytes, up 9% year over year, with average gigabytes per drive for the quarter increasing sequentially and continuing to average over 1 terabyte per drive.”

Leader in areal density

“In the retail space, our 2 terabyte 2.5-inch drive still leads the industry in areal density and will be refreshed in the next two quarters to a higher capacity, maintaining our leadership. We look forward to pushing these areal density improvements into the majority of our products in FY 2016.”

Big data, machine to machine computing, cloud all drive storage demand

“Dave. Turning to our business outlook, the long-term trends in data growth, big data analytics, machine to machine computing and public and private cloud deployments continued to progress in an encouraging manner. Seagate is expanding and investing in its storage technology product and solutions portfolio to align competitively with these market dynamics and capitalize on exabyte demand growth.”

We’re going to manage the business really really tight this quarter

“So you heard us we’re going to try to manage the supply tightly this quarter and with that, we’re going to run the factories probably not the optimal way. So we’re planning some downside there. But as Steve and Rocky said, we’re quickly poised to take advantage of any opportunity that comes to us and we could get some lift there. But we’re just going to manage supply really tight this quarter. That manifests itself in a short term margin compression, but long term economic benefit by maintaining that supply. So it could be a little better, but we’re managing the business really, really tight this quarter.”

We’re projecting all of our businesses pretty flat with maybe upside to PC

“I think actually all of the different markets seem to be at least as we’re managing going into the quarter flat. I think where there is opportunity for the upside is probably on the PC side, depending again on the OEM’s confidence about back to school pool, which I think they’ll start deciding probably in the month of June. ”

If there’s some shift in macro conditions then you could see some acceleration in June

“I think if there’s some shift in terms of what the macro conditions are, whether or not that’s global or just more confidence about what’s happening in the US, then you could see acceleration in June.”

Seagate 3Q13 Earnings Call Notes

This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. The quotes are generally pieces of information that I find interesting or helpful to understanding the company, industry or economy and are not meant to provide summaries of the full content of the call. Other posts in this series can be found by clicking here. Full transcripts can be found at Seeking Alpha.

“we shipped a record 48.7 Exabyte’s of storage up 14% year-over-year and averaged a record 875 gigabytes per drive across our portfolio up 19% over last year.”

“Looking out to 20-20 we believe that data growth and demand for storage is continuing out of pace that is higher than what the drive industry, infrastructure is capable to produce and we estimate that approximately 60% of this data will be stored in both home and enterprise cloud environments.”

“We are pretty confident in our cloud near line portfolio right now. And we look forward to the product launches that are coming next year”

” we are starting to focus a lot more in revenue market share and exabyte market share and we feel that in certain segments it just didn’t make sense to participate given the rather lackluster revenue boast up would have provided us maybe margin pressure.”

“the purchases by the call service providers or internet service providers or any of the big web based companies that are they are very choppy and we expect that you know over the last several quarters so that these large volume orders that they can they come and go in big blocks and sometimes those companies are buying from our traditional OEMs and sometimes they shift their purchasing to direct kind of depending on what type of architectures they are deploying. So I think it’s a bit early to kind of get a read on how that’s going to play out consistently in fact it’s my personal belief that the traditional OEMs are probably going to reestablish themselves pretty effectively in this marketplace just because their go to market capability.”

“we talked a few quarters ago about estimating our cloud business at somewhere around 10% to 12% and now it continued to escalate, and probably 15% to 20% because some of its direct and some of its indirect”

“we think unit TAM probably trends as it has over the last several quarters, which seems to be this kind of 140 give or take like we said I think the last call and the call before that whether or not when you are within 10 million units of either side of that type of TAM for the drive industry, now that’s the things that the industry can manage pretty easily given the way we are producing.”

“I think that just the architectural trends that we see one is the continued advancement of mobile technologies and then the network effect that, that has on where data is created and stored doesn’t seem to us there would be any trend to break away from that. Hopefully, we are some of the new mobile products. You get an even greater network effect, because maybe there is more endpoints of people sharing which content”

“we don’t really see any big macro changes negative or positive and we don’t really see any shifts away from the mobile and cloud future that we have been pretty solid on speaking to. So I think you are going to see relatively flat TAMs with the shift to increasing capacity per drive, which of course were the vertically integrated drive companies means absorption in heads and disc, which is good for us. And then the higher capacity drives of course are higher value-add technology as they are harder drives to making harder drives to test.”

“we’re hopeful with the new design, the [PC] OEMs are coming out with well to stimulate consumer demand but it’s still just a pretty murky segment of the market and that’s why I think we’re very selective and cautious about how we continue to look at the client level of the marketplace.”

“I think for Seagate, certainly, we have always targeted the enterprise SAS market as one that we believe we have a competitive advantage in value-add as a result of our experience in the higher end compute market as it exist. Obviously, Hitachi has the same advantage. So I think relative to some of the other players that haven’t been as exposed to those enterprise workloads as we have, the drive industry has kind of a natural advantage and I could see that those shares reflect what we see in the mission-critical space.”

“I think the SATA space gets a little more confusing just because it’s currently under a lot of price pressure from the people that control media and then the PCI market space whether or not you call that storage or fast memory is also I think extremely challenged right now by a lot of competitors in the space. And while there is value-add to the software, the companies that are providing the media I think are making it difficult for anyone to really have an attractive margin there. So for us, we are really focused on enterprise SAS.”