IB Net Payout Yields Model

Impressive Though Interesting Guidance from Seagate Technology

After hours, Seagate Technology (STX) provided a financial update that included dramatically raising guidance for the next 2 quarters. Considering the flooding in Thailand impacting the industry, first glance would suggest that STX is benefiting from other customers being more impacted. 

It is hard to gather the true benefit considering STX claims to be impacted by external component supply constraints even though their factories were not impacted by floods. 

The company guided to $2.8B versus the $2.64B analyst estimate for Q4 and at least $3.75B for Q1. On top of that, STX guided to higher gross margins by up to 300 basis points for each quarter. So profits should be off the charts compared to estimates. 

The question remains whether these are one time gains from the floods or just higher demand for disk drives. Maybe some analysts more familiar with the sector will be able to opine on that subject. 

Regardless, the company trades at some absurdly low PE multiples which are hard to ignore either way. Seriously, a 5.6 forward PE?

Details via PR:

  • The company continues to believe that, due to the industry impacts caused by the extensive flooding in Thailand, hard disk drive supply will be significantly constrained for several quarters. For the December 2011 quarter, the company believes the industry will ship between 110-120 million units.
  • The company believes the industry’s ability to manufacture and ship hard disks drives will gradually improve throughout calendar 2012.
  • For the December 2011 quarter, the company now expects unit shipments of approximately 43 million units and revenue of approximately $2.8 billion. Gross margin as a percent of revenue is expected to be 150-300 basis points above the high-end of the company’s long-term, targeted gross margin range of 22-26%. Operating expenses (R&D and SG&A) are expected to be approximately $400 million.
  • The company’s outlook for the March 2012 quarter assumes requisite regulatory approvals are received and the Samsung acquisition closes in December of 2011. The company also continues to work with its external suppliers to restore the component supply chain, and now expects that in the March quarter it will be capable of shipping a mix of products in terms of capacity per drive and expected market similar to pre-flood levels. Currently, for the March 2012 quarter, the company expects unit shipments to increase sequentially. Revenue is expected to be at least $3.75 billion and gross margin as a percent of revenue is expected to be at least 300 basis points above the aforementioned targeted range of 22-26%. 

Disclosure: No positions mentioned. Please review the disclaimer page for more details. 


Popular posts from this blog

Ouster: New Day

Carnival: Positive Trajectory

C3.ai: Trough Quarter