Seagate Technology plc (STX) reported fourth quarter 2011 earnings per share of 28 cents, surpassing the Zacks Consensus Estimate of 25 cents.
Revenue
Seagate reported revenues of $2.86 billion in the fourth quarter of 2011, up 7.9% from $2.65 billion in the year-ago period. The company shipped 52 million disk drives in the reported quarter. In the enterprise market, Seagate shipped 5.1 million drives for mission-critical applications and 2.7 million drives for business-critical applications, representing year-over-year increases of 8.0% and 46.0%, respectively.
The company shipped a total of 35.5 million client compute drives in the reported quarter, including 14.7 million mobile drives, up 21.0% year over year. It also shipped 20.7 million desktop drives, up 6.0% year over year. Demand for Seagate-branded storage products increased 36% year over year to 3.5 million units, while consumer electronic products totaled 5.4 million units.
Operating Results
In the fourth quarter of 2011, gross profit decreased to $551.0 million from $728.0 million in the prior-year quarter. Gross margin was 19.3% compared with 27.4% in the prior-year quarter.
Operating income in the quarter was $190.0 million or 6.64% of revenues, down 50.0% from 390.0 million or 14.3% of revenues reported in the year-ago quarter. The decline in operating income was due to higher operating expenses (up 17.2% year over year).
On a GAAP basis, net income was $119.0 million or 27 cents per share, compared with $379.0 million or 76 cents per share in the comparable quarter last year. Excluding the impact of the loss on debt redemption, restructuring charges and amortization of purchased intangible assets, adjusted net income was $126.0 million or 28 cents per share, compared with $385.0 million or 77 cents in the year-ago quarter.
Balance Sheet, Cash Flow & Share Repurchase
Cash, cash equivalents, restricted cash and short-term investments totaled approximately $3.15 billion at the end of the June quarter, versus $2.58 billion in the previous quarter. Accounts receivables increased to $1.49 billion from $1.39 billion in the year-ago period.
Seagate has a long-term debt of $2.95 billion, up from $2.91 billion in the prior quarter. During the quarter, Seagate completed a senior unsecured notes offering of $600.0 million, returned $77.0 million to shareholders in the form of a dividend and repurchased shares worth $112.0 million.
Our Take
We believe that Seagate’s strong foothold in the Enterprise SSD market will enable it to generate solid revenue growth in fiscal 2012 and beyond, which in turn will drive margins. Improving supply-demand balance in the HDD industry will also act as a positive catalyst.
Moreover, both Seagate and WD announced that EU intends to conduct a more in-depth review of their proposed acquisitions of Samsung and HGST. This was expected, and despite the additional reviews, the deals remain on track to close by the end of this year.
We also believe that the company’s decision to buyback shares and pay out dividend will be welcomed by income-seeking investors. But weakness in the consumer segment, price erosion, rising demand for flash drives and competitive pressures from Western Digital Corporation (WDC) keep us on the sidelines.
Currently, Seagate has a Zacks #3 Rank, implying a short-term Hold recommendation.
