No Surprises In Seagate Technology's (NASDAQ:STX) Q1 Sales Numbers, Provides Encouraging Quarterly Guidance
Data storage manufacturer Seagate (NASDAQ:STX) reported results in line with analysts' expectations in Q1 CY2024, with revenue down 11% year on year to $1.66 billion. The company expects next quarter's revenue to be around $1.85 billion, coming in 1.5% above analysts' estimates. It made a non-GAAP profit of $0.33 per share, improving from its loss of $0.28 per share in the same quarter last year.
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Seagate Technology (STX) Q1 CY2024 Highlights:
- Revenue: $1.66 billion vs analyst estimates of $1.66 billion (small miss)
- EPS (non-GAAP): $0.33 vs analyst estimates of $0.26 (25.4% beat)
- Revenue Guidance for Q2 CY2024 is $1.85 billion at the midpoint, above analyst estimates of $1.82 billion (EPS for the period also guided above)
- Gross Margin (GAAP): 25.7%, up from 17.2% in the same quarter last year
- Inventory Days Outstanding: 88, up from 80 in the previous quarter
- Free Cash Flow of $128 million, up 29.3% from the previous quarter
- Market Capitalization: $17.85 billion
"Seagate’s March quarter revenue grew 6% and non-GAAP EPS more than doubled over the December quarter as we benefit from improving cloud demand, our strong operating discipline and price execution. This combination sets the foundation for a return to target margin performance as the markets recover," said Dave Mosley, Seagate’s chief executive officer.
The developer of the original 5.25inch hard disk drive, Seagate (NASDAQ:STX) is a leading producer of data storage solutions, including hard drives and Solid State Drives (SSDs) used in PCs and data centers.
Memory Semiconductors
The rapid growth in data generation and the need to support increases in processing power for everything from consumer devices to data center servers are driving the demand for memory chips. From the content delivery networks and edge computing to the cloud, data storage is a key component underpinning the global technology architecture. On top of that, secular growth drivers like machine learning and the boom in media-rich digital content are further accelerating the need for storage. Like all semiconductor segments, memory makers are highly cyclical, driven by supply and demand imbalances and exposure to consumer product cycles.
Sales Growth
Seagate Technology's revenue has been declining over the last three years, dropping by 11.7% on average per year. This quarter, its revenue declined from $1.86 billion in the same quarter last year to $1.66 billion. Semiconductors are a cyclical industry, and long-term investors should be prepared for periods of high growth followed by periods of revenue contractions (which can sometimes offer opportune times to buy).
Seagate Technology had a difficult quarter as revenue dropped 11% year on year, missing analysts' estimates by 0.4%. This could mean that the current downcycle is deepening.
Seagate Technology looks like it's on the cusp of a rebound, as it's guiding to 15.5% year-on-year revenue growth for the next quarter. Analysts seem to agree as consesus estimates call for 31.5% growth over the next 12 months.
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Product Demand & Outstanding Inventory
Days Inventory Outstanding (DIO) is an important metric for chipmakers, as it reflects a business' capital intensity and the cyclical nature of semiconductor supply and demand. In a tight supply environment, inventories tend to be stable, allowing chipmakers to exert pricing power. Steadily increasing DIO can be a warning sign that demand is weak, and if inventories continue to rise, the company may have to downsize production.
This quarter, Seagate Technology's DIO came in at 88, which is 23 days above its five-year average, suggesting that the company's inventory has grown to higher levels than we've seen in the past.
Key Takeaways from Seagate Technology's Q1 Results
We liked that gross margin and EPS outperformed Wall Street's estimates. Guidance for next quarter was also ahead for revenue and EPS, which is encouraging. On the other hand, its inventory levels increased. Overall, we think this was still a strong quarter that should satisfy shareholders. The stock is flat after reporting and currently trades at $86.53 per share.
Seagate Technology may have had a good quarter, but does that mean you should invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.
