Financial

posted on 16 July 2008 09:35

Seagate reported encouraging overall Q4 and full year 2008 results but mentioned execution issues in notebook and nearline markets and said it was working to improve its gross margin.

In Q4 08 revenues were $2.899 billion (Q4 07 $2.744 billion) and GAAP net income was $160 million (Q4 07 $541 million - inflated with a $320 million tax credit) and $0.32/share (Q4 07 $1.00/share). Full fy 08 revenues were $12.7 billion (fy 07 $11.36 billion) and GAAP net income $1.262 billion (fy 07 $913 millon) and $2.36/share (fy 07 $1.56/share).

These Q4 and fy 08 results were lower than analysts' expectations and reflect Seagate's decision to focus less on notebook drives whichh opened a door for Western Digital to grow its revenues in that area and take product leadership, which Seagate has now reclaimed but it is taking months for new product announcement to work through OEM qualification, etc, and eventually result in revenues.

Seagate has also gained capacity leadership in nearline storage with its 1.5TB SATA drive, half a terabyte higher in capacity than its competitors, such as Hitachi GST.

Seagate CEO Bill Watkins said: "We delivered strong growth in fiscal year 2008, with unit volume and revenue up 15% and 12%, respectively over fiscal year 2007, and with net income of $1.3 billion. Sequentially, our market-leading share positions remained unchanged in the enterprise and desktop markets, we grew our leading share position in the consumer electronics market, and we grew share in the notebook and retail markets."

"Were it not for some product execution issues in the notebook and nearline markets, we believe we would have delivered an even stronger quarter and year, with improved share positions. We have now made significant strides in reclaiming our product leadership in these areas. While we expect that the residual effects of the previously missed execution will be reflected in the first quarter, we believe that we will grow revenue and improve earnings throughout the remainder of FY2009."

Analysts think that Seagate may need to improve its gross margin.

The company stated 'the company is confident that its performance relative to time-to-market, inventory management and its overall cost structure will improve as it executes the plans that are currently in place. Financial performance improvement will be incremental as the company implements numerous changes across the business during the first half of the fiscal year. As such, Seagate expects gross margins to begin improving with the December quarter and settle into the targeted range of 21-25% for the balance of the fiscal year. '

The outlook for Q1 09, the September quarter, is that Seagate expects to report revenue of $3.15 - $3.3 billion, and GAAP diluted net income per share of $0.18 - $0.22. Analysts feel this is below expectations, thinking it was going to be $0.58/share, and the share price has declined.

The full year fiscal 2009 outlook has Seagate believing that the demand trends for storage continue to support healthy industry unit growth of 10-15% and industry revenue growth of 5-10%. Specific to Seagate, the company is confident that its performance relative to time-to-market, inventory management and its overall cost structure will improve as it executes the plans that are currently in place.

^{[Paul Roberts, news editor.]}