Seagate Technology plc (STX) reported third quarter 2012 earnings per share of $2.64, comprehensively beating the Zacks Consensus Estimate of $2.09. Higher unit shipments of its hard disk drives (HDD), coupled with favorable pricing resulted in the earnings outperfromance.
Revenue
Seagate reported revenues of $4.45 billion in the third quarter of 2012, up 65.1% from $2.69 billion in the year-ago period. The company’s unit shipments improved by 29.0% sequentially, as the company shipped 61 million drives, which is equivalent to 42 exabytes. Client products Shipments were positively affected by, the recovery in the notebook market.
As a result of extraordinary efforts of the company’s suppliers and outstanding execution from the company’s operations. The company delivered a portfolio of products to a large customerbase.
Operating Results
Gross profit was $1.6 billion compared with $516.0 million in the prior-year quarter. Gross margin was 36.9% compared with 19.1% in the prior-year quarter. The company was able to control its cost of production, which increased at a lower rate compared to compared to the increase in revenue.
Operating income in the quarter was $1.2 billion or 27.2% of revenues, up 575.9% from 179.0 million or 6.7% of revenues in the year-ago quarter. Operating income improved as the company was able to control its operating expense, as a result of which revenue increased at a substantially higher rate than operating expense.
On a GAAP basis, net income was $1.1 billion or $2.48 per share, compared with $93.0 million or 21 cents per share in the comparable quarter last year. Excluding the impact of total operating expenses and other expenses, adjusted net income was $1222.0 million or $2.64 per share.
Balance Sheet, Cash Flow
Cash and cash equivalents totaled approximately $1.64 billion at the end of the December quarter versus $2.23 billion in the previous quarter. Accounts receivables increased to $2.48 billion from $1.63 billion in the prior quarter. Seagate’s long-term debt declined to at $2.62 billion. The company has a strong cash generation ability and generated $1.82 billion from operating activities.
Our Take
Seagate reported better than expected third quarter, with substantial improvement in revenue, and EPS exceeding Zacks Consensus Estimate. Seagate’s position in the HDD vertical looks impressive and the company is witnessing greater number of LTAs (long nterm agreements), though we think that the uncertainty in the PC market will pose some challenge. Moreover, competitor Western Digital Corp. (WDC) is offering similar products at competitive rates. On the positive side, Seagate’s strong foothold in the Enterprise SSD market will help it to generate healthy revenue growth in fiscal 2012 and beyond, which in turn will improve margins.
Currently, Seagate has a Zacks #3 Rank, implying a short-term Hold rating.
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