Seagate is not in a position to really do more debt-financed buybacks because it already faces a steady flow of maturity with a debt profile that has just a 5.5 year average maturity. As a consequence, its cash position was down $600 million to $615 million while debt rose by $500 million to $5.65 billion. The company bought back $1.8 billion, and it paid $610 million in dividends, so these payouts were already $600 million above its normalized free cash flow. ![]() In 2022, full year free cash flow was $1.276 billion (holding working capital constant, it would have been about $1.83 billion). Now, one thing investors have liked about Seagate is its strong shareholder returns, but those will have to moderate as profits come down. So on a GAAP basis, Seagate can generate $4.00-$4.50 in EPS next year, for a forward multiple of about 12x. The parallels to the current environment are quite similar, and investors should assume margin contraction is coming quarters.īased on Q1 guidance and the performance during downcycles the past decade, with headwinds for the sector building, revenue in fiscal 2023 could be down 7-12%, and as the company faces a loss of operating level and need to move through inventory, we are likely to see margins contract. It was also a year of weak European and Chinese growth as the oil market bottomed out and Brexit occurred. Ultimately, STX will need to cut production rates and likely prices to move through this excess inventory.Īs you can see below, Seagate used the strong demand seen after COVID to push margins up, but the 2022 results were essentially as "good as it gets." It is interesting to note that margins hit their weakest in 2016-a year where the company had to reduce its bloated inventories by $100 million. Given flagging demand, inventory rose $361 million last year, and the company has 76 days of inventory outstanding up from 51 a year ago. That points to another sequential decline in results. Share-based compensation is another $0.19. The strength of the dollar will also be a headwind as these results are translated back into USD.įor its fiscal Q1, guidance is for revenue of $2.5 billion (+/- $150 billion) and non-GAAP EPS of $1.40 (+/- $0.20). This is a particular headwind for Seagate because Asia accounts for 46% of revenue, the Americas 40%, and EMEA 14%. Whether China will stick with COVID-zero or not is unknown, though there are no signs of a change in policy. Legacy markets are being significantly impacted by China's lockdowns and inflation with "consumer demand down more than anticipated." It is also important to note that mass capacity shipments were up 4%, so the flat revenue points to pricing erosion. In the quarterly commentary, David Mosley, the company CEO said, "In this environment, we are reducing our production plans to maintain supply discipline as our customers manage through macro uncertainty." This can be seen in the results because while the company's mass capacity unit reported stable revenue quarter over quarter, the legacy unit fell 25%. For that reason, I do think investors should rely on GAAP results as providing a more accurate representation of the company's performance. Some of the $1.8 billion share buyback the company did last year was to offset these equity grants rather than reduce the share count. While SBC is a non-cash expense, it is still an expense as it dilutes shareholders' ownership of the economy. I think it is important to note that share-based compensation (SBC) drives about 80% of the difference between GAAP and non-GAAP earnings. For the full year, the company earned $8.18 on a non-GAAP basis and $7.36 on a GAAP basis as the company actually expanded margins during the relatively strong first half. Non-GAAP gross margins were 29.3%, down from 29.6%, and non-GAAP EPS was $1.59 from $2. In the company's fiscal fourth quarter, it is quite apparent the cycle is turning, Revenue was $2.63 billion, down 12.8% from last year. ![]() Even with the stock down a third, it is not yet time to try to pick the bottom. Hard disk drive demand (which Seagate sells) fell 33% this summer from last year. Indeed, PC demand fell 19.5% year over year in Q3 according to Gartner. Shares of Seagate Technology ( NASDAQ: STX) have been on a steadily decline all year as questions increase over a turn in the technology cycle with all hardware providers, from semiconductor companies to equipment manufacturers facing significant selling.
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |