01—Abstract
Summary
Summary of the 10-K filed August 8, 2013. Cited figures are marked; the original filing is the authoritative source.
Seagate's fiscal 2013 (ended June 28, 2013) was a year of lower revenue and margins after an exceptional fiscal 2012.
Revenue fell 4% to $14.4 billiona from $14.9 billion, as average selling price per unit dropped to $63 from $66 following the 2011 Thailand flooding that had inflated prices. Gross margin contracted sharply to 27% from 31%, and operating income declined 33% to $2.1 billion. Net income fell to $1.84 billion ($4.81 diluted EPS) from $2.86 billion ($6.49).
Unit shipments rose modestly to 226 million and exabytes shipped grew 23%b to 185, indicating that volume and capacity growth continued even as pricing normalized. Management described price erosion as relatively benign during the year. Capital allocation was shareholder-focused.
Seagate repurchased about 54 million shares for roughly $1.7 billionc, paid $0.5 billion in dividends (the quarterly dividend was raised to $0.38 per share from $0.32), and reduced its debt principal by about $1.1 billion through early redemptions, which produced a $141 million loss. It issued $1 billion of 4.75% notes due 2023 to refinance higher-coupon debt. Total debt declined to $2.78 billion, and cash plus short-term investments was about $2.2 billion.
Operating cash flow was $3.0 billiond, against capital expenditures of roughly $0.8 billion. On July 24, 2013, the board authorized an additional $2.5 billion repurchase program. Investors should weigh several risks.
The company faces a structural shift toward SSDs and flash, which the filing identifies as a competitive threat to client compute and enterprise markets. It remains dependent on a few large OEM customers (Dell at 13% and HP at 10% of revenue) and on a concentrated supplier base in Thailand. Its Samsung HDD acquisition carries Chinese regulatory conditions, including $800 million per year of R&D investment for three years.
A possible Section 382 ownership change could trigger a one-time tax charge of $400 to $500 million. The Convolve litigation remains open after a July 2013 appellate ruling that partly reversed the lower court.
02—Key points
Key Highlights
- Revenue declined 4% to $14.35 billion, driven by lower ASP ($63 vs. $66 per unit) as supply normalized after the 2011 Thailand flooding.
- Gross margin compressed to 27% from 31%, and operating income fell 33% to $2.09 billion, reflecting the unwinding of flood-driven pricing.
- Net income was $1.84 billion, or $4.81 per diluted share, versus $2.86 billion ($6.49) in fiscal 2012.
- Shipments grew to 226 million units and 185 exabytes, up 23% in capacity terms, showing continued volume and areal density progress.
- Shareholder returns were strong: $1.7 billion in buybacks (54M shares), $0.5 billion in dividends, and a quarterly dividend raised to $0.38; an additional $2.5 billion buyback was authorized in July 2013.
- Debt fell to $2.78 billion after about $1.1 billion of early redemptions, financed partly by a new $1 billion 4.75% 2023 note; the early redemptions produced a $141 million loss.
- Key risks include SSD/flash substitution, dependence on Dell (13%) and HP (10%), and a possible $400–500 million tax charge if an ownership change limits NOL usage.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2013, Seagate Technology Holdings plc kept $0.13.
- Revenue$14.35B100.0%
- Cost of revenue−$10.41B72.5%
- Gross profit$3.94B27.5%
- Operating costs−$1.85B12.9%
- Operating income$2.09B14.6%
- Interest, other & tax−$253.0M1.8%
- Net income$1.84B12.8%
Where FY2013 revenue went
$14.35B- Cost of revenue: $10.41B, 73% of revenue
- Net income: $1.84B, 13% of revenue
- R&D: $1.13B, 7.9% of revenue
- SG&A: $635.0M, 4.4% of revenue
- Other operating costs: $81.0M, 0.6% of revenue
- Interest, other & tax: $253.0M, 1.8% of revenue
Kept 13% as net incomeOther operating costs $81.0M · 0.6%Interest, other & tax $253.0M · 1.8%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2013filed August 8, 2013Financial Statements
FY2013 against FY2012
| Line item | FY2013FY2012 | Change |
|---|---|---|
| Revenue | $14.35B$14.94B | −3.9% |
| Cost of Revenue | $10.41B$10.26B | +1.5% |
| Gross Profit | $3.94B$4.68B | −15.9% |
| R&D Expenses | $1.13B$1.01B | +12.6% |
| SG&A Expenses | $635.00M$528.00M | +20.3% |
| Operating Expenses | $12.26B$11.83B | +3.6% |
| Operating Income | $2.09B$3.11B | −32.7% |
| Interest Expense | $214.00M$241.00M | −11.2% |
| Net Income | $1.84B$2.86B | −35.8% |
| EPS (Basic) | $4.97$6.72 | −26.0% |
| EPS (Diluted) | $4.81$6.49 | −25.9% |
| Shares Outstanding (Basic) | 370.00M426.00M | −13.1% |
| Shares Outstanding (Diluted) | 382.00M441.00M | −13.4% |
05—Questions
Frequently Asked Questions
Why did Seagate's revenue and margins decline in fiscal 2013 after a strong fiscal 2012?
Fiscal 2012 benefited from a supply shortage caused by flooding in Thailand, which raised average selling prices to $66 per unit. As supply recovered in fiscal 2013, ASP fell to $63, reducing revenue by about 4% and gross margin from 31% to 27%. Unit volumes grew slightly, which partly offset the pricing decline.
How much cash did Seagate return to shareholders, and what is the remaining buyback capacity?
In fiscal 2013 Seagate repurchased about 54 million shares for approximately $1.65 billion and paid $518 million in dividends, for total returns of roughly $2.2 billion. As of June 28, 2013, $0.9 billion remained under the existing authorization. On July 24, 2013, the board approved a new $2.5 billion repurchase program.
Is Seagate's debt load improving?
Yes, modestly. Total debt declined to $2.78 billion from $2.86 billion, and the company retired higher-coupon notes (10%, 7.75%, 6.8%) using cash and a new 4.75% 2023 issue. Interest expense fell to $214 million from $241 million. Early redemptions cost a $141 million one-time loss, and the debt maturity schedule is back-end loaded, with about $2.4 billion due after 2018.
What are the biggest risks to Seagate's business outlook?
The main risks are competitive substitution by SSDs in notebook and enterprise applications, pricing pressure from Western Digital and Toshiba, concentration in a few OEM customers, and supply-chain exposure to flood-prone Thailand. Other risks include the Samsung acquisition conditions imposed by China, which require $800 million annually in R&D, and a possible $400–500 million tax charge if ownership changes limit NOL usage.
Does Seagate face material litigation exposure?
The most significant matter is Convolve/MIT, where plaintiffs sought $800 million. A July 2013 appellate ruling affirmed most of Seagate's trade-secret and '635 patent wins but remanded a '473 patent non-infringement issue, so the company says a reasonable loss estimate cannot yet be made. Other pending matters include the Shukh employment claim (over $75 million sought), the LEAP claim (about $38 million), and several ITC investigations. Management does not expect most of these to produce material losses.
06—Continue