01—Abstract
Summary
Summary of the 10-K filed August 12, 2015. Cited figures are marked; the original filing is the authoritative source.
Seagate's fiscal 2015 10-K (fiscal year ended July 3, 2015, a 53-week year) shows a company that held revenue essentially flat at $13.7 billiona while improving profitability.
Gross margin held at 28%, and net income rose 11% to $1.74 billionb, or $5.26 per diluted share. Results were helped by a one-time $620 million gain from the arbitration award against Western Digital, and the company also absorbed a $193 million net income tax charge tied to a Chinese tax assessment. Excluding those items, underlying performance was softer, with units shipped down 4% and moderate price erosion offsetting product mix gains and acquisitions (LSI's Flash Business and Xyratex).
Cash generation remained strong, with operating cash flow of $2.6 billion, but cash and equivalents declined to $2.5 billionc after heavy capital return and investment. The company spent $1.1 billion repurchasing 19 million shares, paid $0.7 billion in dividends (quarterly dividend raised to $0.54 per share), retired about $1.0 billion of debt, and invested $747 million in capex. It issued $1.2 billion of new senior notes, bringing total debt to roughly $4.2 billion, and $2.9 billion remained under its share repurchase authorization.
Management guided to capex at or below 6%d to 8% of revenue for fiscal 2016 and affirmed confidence in liquidity for at least the next 12 months. The filing also highlights ongoing risks: concentrated customers (Dell at 14% and HP at 12% of revenue), competition from SSDs and flash, cyclical HDD pricing, and a leveraged balance sheet. Its Asia-based manufacturing footprint and reliance on a few suppliers add further operational exposure.
02—Key points
Key Highlights
- Revenue was flat at $13.7B (up 0.1%), supported by acquisitions and favorable product mix, offset by a 4% decline in units shipped (212M units vs. 220M) and moderate price erosion.
- Net income rose 11% to $1.74B ($5.26 diluted EPS), aided by a $620M net gain from the Western Digital arbitration award, partly offset by a $193M China tax assessment charge.
- Gross margin was stable at 28%, with product mix and operational efficiencies offsetting price erosion.
- Operating cash flow was $2.6B, though it included a $773M partial arbitration payment from Western Digital and a $225M China tax payment.
- Capital returns were significant: $1.1B in share repurchases (19M shares), $0.7B in dividends, and a quarterly dividend increased to $0.54 per share; $2.9B remains authorized for buybacks.
- Total debt rose to about $4.2B after issuing $1.2B of new senior notes and retiring roughly $1.0B of older debt; the $700M revolver remains undrawn.
- Customer concentration is high, with Dell (14%) and HP (12%) together representing about a quarter of revenue.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2015, Seagate Technology Holdings plc kept $0.13.
- Revenue$13.74B100.0%
- Cost of revenue−$9.93B72.3%
- Gross profit$3.81B27.7%
- Operating costs−$1.75B12.7%
- Operating income$2.06B15.0%
- Interest, other & tax−$316.0M2.3%
- Net income$1.74B12.7%
04—Financials
Financial Highlights
Figures from 10-KFY2015filed August 12, 2015Financial Statements
FY2015 against FY2014
| Line item | FY2015FY2014 | Change |
|---|---|---|
| Revenue | $13.74B$13.72B | +0.1% |
| Cost of Revenue | $9.93B$9.88B | +0.5% |
| Gross Profit | $3.81B$3.85B | −1.0% |
| R&D Expenses | $1.35B$1.23B | +10.4% |
| SG&A Expenses | $857.00M$722.00M | +18.7% |
| Operating Expenses | $11.68B$11.95B | −2.2% |
| Operating Income | $2.06B$1.78B | +15.9% |
| Interest Expense | $207.00M$195.00M | +6.2% |
| Net Income | $1.74B$1.57B | +11.0% |
| EPS (Basic) | $5.38$4.66 | +15.5% |
| EPS (Diluted) | $5.26$4.52 | +16.4% |
| Shares Outstanding (Basic) | 324.00M337.00M | −3.9% |
| Shares Outstanding (Diluted) | 331.00M347.00M | −4.6% |
05—Questions
Frequently Asked Questions
Was Seagate's fiscal 2015 earnings growth driven by core operations?
Only partly. Net income increased to $1.74B, but it included a $620M gain from the Western Digital arbitration award and a $193M China tax charge. Core operating income was lower than the headline figure suggests, since revenue was flat, units shipped fell 4%, and price erosion was moderate.
How strong is Seagate's cash generation and liquidity?
Operating cash flow was $2.6B, though it was boosted by the one-time $773M arbitration payment. Cash and equivalents ended at $2.5B, and management believes sources of cash are sufficient for at least the next 12 months. The $700M revolving credit facility was undrawn.
What is Seagate's capital allocation approach?
Seagate prioritized shareholder returns and debt management. It spent $1.1B on buybacks, paid $0.7B in dividends, and refinanced debt by issuing $1.2B of new senior notes while retiring about $1.0B of existing debt. Capex was $747M, and management expects fiscal 2016 capex at or below 6% to 8% of revenue.
What are the main risks to Seagate's outlook?
Key risks include HDD price erosion, potential share loss to SSDs and flash, reliance on a few large OEM customers (Dell and HP), concentrated suppliers and manufacturing in Asia, currency fluctuations, and leverage with about $4.2B of debt. The company also faces ongoing IP litigation, and a Chinese tax matter was resolved with an advance pricing agreement covering through 2018.
06—Continue